Margin and markup are not the same number
Both measure the same profit but divide it by different things. This calculator reports both for every sale, so you can see the gap:
- Profit = revenue − cost.
- Gross margin = profit ÷ revenue × 100. It is the share of the selling price you keep.
- Markup = profit ÷ cost × 100. It is how far above cost you priced the item.
Margin can never reach 100% while cost is positive, whereas markup has no upper limit. For any profitable sale, markup is larger than margin.
Two modes
From cost + revenue uses the two amounts you type. From cost + target margin works out the selling price you need: price = cost ÷ (1 − margin / 100). A target margin of 100% or more shows a message, since a 100% margin would need an infinite price, and costs or revenues below 0 are rejected too. If revenue is zero the margin shows 0, and if cost is zero the markup shows 0, as neither is defined.
Worked examples
With a cost of 60 and a price of 100, profit is 40, margin is 40% and markup is 66.67%. To earn a 35% margin on a cost of 60, the price is 60 ÷ 0.65 = 92.31, which is a markup of 53.85%.
| Cost | Price | Profit | Margin | Markup |
|---|---|---|---|---|
| 60 | 100 | 40 | 40% | 66.67% |
| 40 | 50 | 10 | 20% | 25% |
| 75 | 100 | 25 | 25% | 33.33% |
| 50 | 100 | 50 | 50% | 100% |
The classic mistake
Pricing a 60 item with a 40% markup gives 84, but the profit of 24 is only 28.57% of the 84 selling price, not 40%. A seller who wanted a 40% margin should have charged 60 ÷ 0.6 = 100. The reverse error is also common: a 50% margin is a 100% markup, so a business that doubles its cost has a 50% margin, not 100%.
Limits to keep in mind
- Gross, not net. The cost field is labelled COGS, so the result is a gross margin. Rent, wages, marketing, payment fees and tax are not subtracted, so net profit is lower.
- Per unit or in total. The tool works equally on one item or on a whole period's totals, as long as cost and revenue cover the same things.
- Discounts and refunds. Enter the revenue you actually received. A 20% promotion changes the margin dramatically; the discount calculator shows the resulting price.
For the return on a single investment instead of a product, see the ROI calculator. If a salesperson takes a cut of the revenue, the commission calculator shows what is left.