A supplier sells you an item for $100. You add 30% and list it at $130. How much of that $130 is profit?
It's $30, which is 23.1% of the price, not 30%. That gap is the whole margin vs markup mix-up. It's easy to make, and it costs real money when you plan around the wrong number.
What is the difference between margin and markup?
Both use the same profit. They just divide it by different things.
Markup % = (Price - Cost) / Cost x 100
Margin % = (Price - Cost) / Price x 100
Markup asks how much you added on top of your cost. Margin asks how much of the price you keep. On the $130 item, the profit is $30. Divide by the $100 cost and you get a 30% markup. Divide by the $130 price and you get a 23.1% margin.
Markup can go above 100%. If you sell something for three times what it cost, that's a 200% markup. Margin can never pass 100%, because the profit can't be bigger than the price.
How do I convert one to the other?
Margin % = Markup / (100 + Markup) x 100
Markup % = Margin / (100 - Margin) x 100
Here are some common values, on a $100 cost:
| Markup | Price | Profit | Margin |
|---|---|---|---|
| 20% | $120 | $20 | 16.7% |
| 25% | $125 | $25 | 20.0% |
| 30% | $130 | $30 | 23.1% |
| 50% | $150 | $50 | 33.3% |
| 100% | $200 | $100 | 50.0% |
I checked each row in the calculator. Going the other way, a 30% margin needs a 42.9% markup, and a 50% margin needs a 100% markup.
Where does the mix-up cost real money?
Say you want a 30% margin, but you apply a 30% markup. On a $100 cost you list at $130. You planned to keep 30% of $130, which is $39. You actually keep $30.
That's $9 short on every sale. Over 200 sales it's $1,800 of profit you thought you had. To really get a 30% margin on that item you'd need to charge $142.86, which is a 42.9% markup.
What do fees do to this?
They make the gap worse. Take the same $130 item, ship it for free, and charge 10% commission plus a 3% payment fee. Fees are $16.90, so profit drops to $13.10. That's a 10.1% margin, even though you added a 30% markup.
If you price against fees, work backwards from the margin you want. I explain the formula in my guide on pricing for a 30% margin.
Which one should I use?
When fees are a percentage of the price, margin is easier to work with, because both are shares of the same number. Markup feels natural when you think "my cost plus a bit". Either works, as long as you know which one you're using.
The calculators on this site show both. The net margin is the main result, and markup sits next to it.
How can I tell which one someone means?
Ask for a test with a $100 cost. Say "30%". If the price comes out at $130, it's a markup. If it comes out at $142.86, it's a margin. You can do the same test on any spreadsheet or supplier quote with one row.
What are the spreadsheet formulas?
If you keep your prices in a spreadsheet, put the cost in column A and the price in column B. Then:
- Margin:
=(B2-A2)/B2, formatted as a percentage. - Markup:
=(B2-A2)/A2. - Price for a margin you want (say 30% in C2):
=A2/(1-C2). - Price for a markup you want:
=A2*(1+C2).
The two price formulas are where the mix-up hides. Dividing by (1 - margin) and multiplying by (1 + markup) look alike, and they give different prices for the same percentage. On a $100 cost and 30%, the first gives $142.86 and the second gives $130.
Who is writing this?
I'm Saqib, the developer behind PayoutCalc. I haven't run an online shop. This is arithmetic, and you can check every number on a phone calculator. Try your own numbers in the multi-platform calculator, or tell me if something here looks wrong.