Business studies
Markup and margin calculator
Markup and margin are not the same percentage: the first is worked out on the cost, the second on the selling price. Whichever you enter, you get both back.
Markup and margin: the difference that costs most
Markup measures the profit against the cost, margin measures it against the selling price. They are two readings of the same profit over different denominators, which is why they never coincide: a 50% markup is a 33.3% margin, a 100% markup is a 50% margin. The larger the markup, the further apart the two numbers drift.
The confusion is expensive in both directions. Someone who wants a 30% margin and applies a 30% markup actually gets a 23% margin: seven points lost without noticing. Someone quoting a 40% markup while believing they are quoting a margin is overstating their profitability by about a third.
In practice retailers often work with the multiplier — the number the cost is multiplied by to reach the price. A multiplier of 2 means a 100% markup and a 50% margin. It is the fastest way to price a range, because it removes the percentages and with them the ambiguity about which base is being used.
Common mistakes
- Applying the desired margin percentage to the cost: for a 30% margin the cost is divided by 0.70, not multiplied by 1.30.
- Comparing one company's markup with another's margin: they are different measures and the comparison means nothing until both are put on the same base.
- Forgetting that purchase cost is not total cost: shipping, storage and returns belong in it, or the real margin is lower than the one calculated.
Frequently asked questions
What is the difference between markup and margin?
Markup is profit divided by cost, margin is profit divided by selling price. With a cost of 100 and a price of 150 the profit is 50: the markup is 50/100 = 50% and the margin is 50/150 = 33.3%.
How do you work out the selling price from a target margin?
Divide the cost by 1 minus the margin as a decimal. For a 25% margin on a cost of 60: 60/0.75 = 80.
What is the multiplier?
The number the cost is multiplied by to reach the selling price. A multiplier of 1.5 corresponds to a 50% markup and a 33.3% margin.
Why can the margin never reach 100%?
Because the margin is the share of the price made up of profit. A 100% margin would mean the whole price is profit, that is, that the purchase cost is zero: the price needed would tend to infinity.
How this calculation works
Profit per unit: P = price − cost. Markup: r = P/cost × 100, so price = cost × (1 + r/100). Margin: m = P/price × 100, so price = cost / (1 − m/100). Converting between them: m = r/(1 + r) and r = m/(1 − m), with r and m as decimals. Multiplier: k = price/cost = 1 + r. The margin is always lower than the markup, and the gap widens as both grow: a 100% markup is a 50% margin.
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