Margin vs markup: why a 50% markup is a 33.3% margin
Margin and markup both measure profit, but they divide it by different numbers. Margin is profit as a share of the selling price. Markup is profit as a share of the cost. A product that costs 10 and sells for 15 makes 5 profit, which is a 33.3% margin and a 50% markup. The same profit reads as a smaller percentage on the margin side, so a 50% markup is only a 33.3% margin.
Margin calculatorWhat price gives my margin?OpenTwo formulas with different divisors
- Profit is the selling price minus the cost.
- Margin is profit divided by the selling price, times 100.
- Markup is profit divided by the cost, times 100.
Both figures use the same profit, so the difference is only the divisor. When there is a profit, the selling price is larger than the cost, so the margin is always the smaller percentage. The two match only when there is no profit at all.
The margin calculator shows both at once. With the default cost of 10 and price of 15, its working line reads: Profit = 15 − 10 = 5; margin = 5 ÷ 15 × 100 = 33.33%; markup = 5 ÷ 10 × 100 = 50%.
Converting markup into margin
Start with a cost of 100 and a markup of k percent. The profit is k, the selling price is 100 + k, and the margin is k ÷ (100 + k) × 100. So a 50% markup gives 50 ÷ 150 = 33.33%. The formula covers any markup, and the table gives the results for some common ones, rounded to two decimal places.
| Markup | Margin |
|---|---|
| 10% | 9.09% |
| 25% | 20% |
| 40% | 28.57% |
| 50% | 33.33% |
| 100% | 50% |
| 150% | 60% |
| 200% | 66.67% |
| 300% | 75% |
Going the other way, a margin of m percent gives a markup of m ÷ (100 − m) × 100. A 20% margin is a 25% markup, a 40% margin is a 66.67% markup, and a 50% margin is a 100% markup. A 100% markup means the product sells for double its cost, which is the same price as a 50% margin.
Pricing from a target margin
To find the price that gives a target margin, divide the cost by one minus the margin: price = cost ÷ (1 − margin). For a cost of 30 and a 40% margin, the price is 30 ÷ 0.6 = 50. The profit is 20, and 20 ÷ 50 is 40%. In the calculator, choose Cost + margin, type the cost and the margin, and the price appears with its profit and markup.
The common mistake is to use the margin as if it were a markup. A 40% markup on the same cost gives 30 × 1.4 = 42, and the margin on that price is 12 ÷ 42, which is 28.57%. That is well short of the 40% target, so check which of the two a figure refers to before you use it. A 40% margin is a 66.67% markup on the same cost, so the two numbers should never be mixed.
How a discount eats margin
Take a product that costs 60 and sells for 100. Its profit is 40, its margin is 40% and its markup is 66.67%. Those are the figures the calculator shows for those two numbers.
Now take 20% off. The selling price is 100 × 0.8 = 80, which the discount calculator gives as 80.00 when you enter a price of 100 and a discount of 20. The profit falls to 80 − 60 = 20, half of what it was. The margin is 20 ÷ 80 = 25%, and the markup is 20 ÷ 60 = 33.33%. The price fell by 20, but the margin fell by 15 percentage points, because the cost stayed at 60.
A short formula gives the margin after a discount d: margin = 1 − cost ÷ (price × (1 − d)). Here that is 1 − 60 ÷ 80 = 25%, the same answer.
To hold a 40% margin through a 20% discount, the sale price must still be 100, so the list price must be 125. Then 125 × 0.8 = 100, and a cost of 60 gives the 40% margin again.
Why margin cannot reach 100 percent
Margin is 1 − cost ÷ price, as the discount formula above shows. It reaches 100% only when the cost is zero. With any cost above zero, a higher price pushes the margin closer to 100% without reaching it. The price formula shows the same limit: price = cost ÷ (1 − margin), and at a 100% margin the divisor is zero, so no price works.
The calculator refuses a margin target of 100% or more, with a message that the price would have to be unlimited. Markup has no such limit. A 300% markup is a 75% margin, and the markup keeps growing as the price rises with the cost fixed. A 90% margin needs a price ten times the cost, because the cost is then only a tenth of the price.
Edge cases
- Losses. A price below cost gives a negative margin. Selling for 8 with a cost of 10 gives a profit of −2, a margin of −25% and a markup of −20%, and the calculator warns that the sale is at a loss of 2.00.
- VAT and sales tax. Shelf prices often include tax, and that tax is not the seller's income. In most VAT systems it is passed on to the government, so work out margin on the price before tax. The VAT calculator takes tax out in its Remove tax mode, and VAT vs sales tax explains the difference.
- Costs. The calculator uses the cost you enter. Overheads, shipping and returns are not part of it unless you add them to the cost.
- Points, not percent. A margin that falls from 40% to 25% has dropped 15 percentage points, which is a 37.5% fall in the margin (15 ÷ 40). Keep the two apart when you report a change.
