How margin and markup are calculated
Profit is the gap between what you sell for and what the item costs you: price minus cost. Both margin and markup describe that same profit, but they divide it by different things.
Margin divides profit by the selling price and answers "what share of each sale is profit?" Markup divides profit by the cost and answers "how much did I add on top of cost?" Because the price is always larger than the cost, the margin percentage is always lower than the markup percentage for the same product.
Reading the result
The headline margin tells you the profitability of each sale as a percentage. The profit figure is the dollars you keep per unit, and the markup shows how much you marked the item up from cost.
The donut chart splits the selling price into the cost you paid and the profit you earned, making it easy to see how much of each sale is actually yours to keep versus covering the cost of goods.
Using these numbers in pricing
Margin and markup are pricing levers, so keep a few rules in mind:
- To hit a target margin, divide cost by (1 − margin); a 40% margin on a $60 cost means a $100 price.
- A markup percentage always converts to a smaller margin — 100% markup is only a 50% margin.
- These figures are gross margin per unit; they do not include overheads, shipping, fees or returns, which eat into your real net profit.
Formula
profit = price − cost; margin = profit/price × 100; markup = profit/cost × 100Frequently asked questions
- What is the difference between margin and markup?
- Margin divides profit by the selling price; markup divides the same profit by the cost. A 50% markup is only a 33.3% margin.