How to calculate profit margin and markup
Profit is the selling price minus the cost. Margin divides that profit by the selling price; markup divides it by the cost. The two percentages are always different unless the profit is zero.
Example: something that costs $40 and sells for $60 has a $20 profit, a 33.3% margin (20 ÷ 60) and a 50% markup (20 ÷ 40).
Margin vs markup, which to use
Margin is more common for judging overall profitability, since it's a share of revenue. Markup is more common for setting a price from a known cost. Mixing the two up is a common pricing mistake — a 50% markup is only a 33% margin, not 50%.
Estimates only, for general information — not financial or accounting advice. Last updated
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. The same dollar profit gives a smaller margin percentage than markup percentage.
How do I price for a target margin?
Divide the cost by (1 minus the target margin as a decimal). For a 30% margin on a $70 cost, that's 70 ÷ 0.7 = $100.
What counts as cost?
Usually the direct cost of the item or service — materials, wholesale price, or cost of goods sold. Overheads like rent or salaries are typically tracked separately.
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