Margin vs markup: the difference that costs sellers money
Margin and markup both describe profit, but against different bases. Mixing them up is one of the most common pricing mistakes. A seller who “adds 30%” to cost thinks they have a 30% margin, but they actually have 23%.
Profit = Price − Cost
Margin = Profit ÷ Price × 100
Markup = Profit ÷ Cost × 100
Worked example
A product costs $15 and sells for $25. Profit is $10. Margin is $10 ÷ $25 = 40%. Markup is $10 ÷ $15 = 66.7%. Same product, same profit, two very different percentages.
How to price for a target margin
To hit a target margin, divide the cost by (1 − margin). Don’t multiply the cost by (1 + margin).
Price = Cost ÷ (1 − Target margin)
For a 40% margin on a $15 cost: $15 ÷ 0.60 = $25. Multiplying $15 × 1.40 gives $21, which is only a 28.6% margin.
Margin ↔ markup conversion table
| Margin | Equivalent markup | Price on a $10 cost |
|---|---|---|
| 20% | 25% | $12.50 |
| 25% | 33.3% | $13.33 |
| 30% | 42.9% | $14.29 |
| 40% | 66.7% | $16.67 |
| 50% | 100% | $20.00 |
| 60% | 150% | $25.00 |
| 75% | 300% | $40.00 |
Gross margin isn’t net margin
This calculator gives gross margin: price minus product cost. For online sellers, marketplace fees, shipping and ads often take another 20–40% of the price. To see what you really keep, use the Amazon FBA, Shopify or Etsy calculator.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit as a percentage of the selling price. Markup is profit as a percentage of the cost. A product that costs $15 and sells for $25 has a 40% margin but a 66.7% markup.
How do I calculate the price for a target margin?
Divide the cost by one minus the target margin. For a 40% margin on a $15 cost: $15 ÷ 0.60 = $25.
How do I convert markup to margin?
Margin = Markup ÷ (1 + Markup). A 50% markup is a 33.3% margin, and a 100% markup is a 50% margin.
What is a good profit margin?
It depends on the business. Retail and e-commerce products often target 40–60% gross margin so that fees, shipping and ads still leave a net profit of 10–30%.
Can a profit margin be over 100%?
No. Margin is a share of the selling price, so it is always below 100%. Markup can be any size, for example 300%.