payments Profit & Margin Calculator star

Margin vs. Markup — the Formulas

From cost and selling price: profit = price − cost; margin = profit ÷ price × 100 (what share of the sale price is profit); markup = profit ÷ cost × 100 (how much you added on top of cost to set the price). These two percentages describe the exact same sale but always give different numbers, and the gap is the single most common source of pricing mistakes: a product bought for 100 and sold for 150 has 50 profit, a 33.3% margin (50 ÷ 150) but a 50% markup (50 ÷ 100). Markup is always the larger figure whenever there is any profit at all, and the two only converge toward each other at very small percentages.

Converting Between Them

The two are related by simple formulas that let you convert one to the other without redoing the whole calculation: margin = markup ÷ (100 + markup) × 100, and markup = margin ÷ (100 − margin) × 100. So a 50% markup always converts to a 33.3% margin (50 ÷ 150 × 100), and a 33.3% margin always converts back to a 50% markup (33.3 ÷ 66.7 × 100). Knowing this conversion matters because suppliers and industry benchmarks often quote markup, while accounting and financial statements almost always report margin — quoting one number as if it were the other silently changes the meaning by a large amount, especially at higher percentages (a 100% markup is only a 50% margin, not 100%).

Pricing for a Target Margin

The reverse calculator sets a selling price to hit a target margin using: price = cost ÷ (1 − margin ÷ 100). For a 60 cost and a 40% margin target: price = 60 ÷ 0.6 = 100. A very common error here is multiplying the cost by (1 + margin) instead — 60 × 1.40 = 84 — which actually delivers only a 28.6% margin (24 ÷ 84), not the intended 40%, because that shortcut computes a markup, not a margin. Dividing by (1 − margin), never multiplying by (1 + margin), is the correct move whenever the starting number is a target margin.

What to Exclude From the Numbers

Profit, margin and markup should all be calculated on VAT-exclusive amounts. The VAT a business collects on a sale is held on behalf of the tax authority and passed through, not earned — including it in the "selling price" side of the formula overstates both revenue and profit, and inflates the calculated margin above its real value. The same logic applies to any other pass-through charge collected alongside the price but owed to a third party rather than kept by the seller.

Which Cost Figure to Use

The "cost" in these formulas should be the actual unit cost of the item sold — purchase price plus directly attributable costs like shipping or packaging for that unit — not a share of fixed overhead like rent or salaries, which do not scale with each individual sale. Blending fixed overhead into the per-unit cost inflates the apparent cost and understates margin on a per-item basis; overhead is better tracked separately against total revenue to find the true break-even sales volume, rather than folded into every single transaction's margin calculation.