Markup vs Margin: the Chart, the Formulas, and the Pricing Trap
Markup and margin both describe the same profit. The difference is what you divide it by:
- Markup is profit divided by cost.
- Margin is profit divided by price.
Because price is always bigger than cost, margin is always the smaller number. A 50% markup is a 33.3% margin. A 100% markup - doubling your cost - is a 50% margin.
Markup to margin chart
| Markup | = Margin | Price on a $10 cost |
|---|---|---|
| 10% | 9.1% | $11.00 |
| 20% | 16.7% | $12.00 |
| 25% | 20% | $12.50 |
| 30% | 23.1% | $13.00 |
| 40% | 28.6% | $14.00 |
| 50% | 33.3% | $15.00 |
| 60% | 37.5% | $16.00 |
| 75% | 42.9% | $17.50 |
| 100% | 50% | $20.00 |
| 150% | 60% | $25.00 |
| 200% | 66.7% | $30.00 |
| 300% | 75% | $40.00 |
Margin to markup chart
If you know the margin you want to keep, this is the markup that gets you there, and the number to multiply your cost by:
| Margin you want | Markup needed | Multiply cost by |
|---|---|---|
| 10% | 11.1% | 1.1111 |
| 20% | 25% | 1.2500 |
| 25% | 33.3% | 1.3333 |
| 30% | 42.9% | 1.4286 |
| 40% | 66.7% | 1.6667 |
| 50% | 100% | 2.0000 |
| 60% | 150% | 2.5000 |
| 70% | 233.3% | 3.3333 |
| 75% | 300% | 4.0000 |
| 80% | 400% | 5.0000 |
The formulas
- Margin from markup: margin = markup / (1 + markup)
- Markup from margin: markup = margin / (1 - margin)
- Price for a target margin: price = cost / (1 - margin)
- Price for a target markup: price = cost x (1 + markup)
The trap, worked through
You buy something for $20 and want to keep a 40% margin. The common mistake is to add 40% to the cost:
- $20 x 1.40 = $28.00 - which is a margin of only 28.6%.
The right way divides:
- $20 / (1 - 0.40) = $33.33 - and 40% of $33.33 is exactly the profit.
That is $5.33 a unit left on the table, on every sale, by using the right percentage on the wrong base. To build that cost from materials, labor and overhead first, see how to calculate wholesale price.
Why margin is the number to manage
Fees, discounts and card charges come off the price, not the cost - so they come straight out of margin. If you keep a 40% margin and a marketplace or payment fee takes 10% of the price, you are down to 30% before you have paid for anything else. Thinking in margin lets you subtract fees directly; thinking in markup hides them.
How these were calculated
Every figure in both charts was computed two ways - from the formula, and the long way round through an actual cost and price - and the page only builds if they agree. The $20 example is illustrative.
If you price products often, the dial below does the conversion in your hand - point it at your cost and read the price for any margin - and prints the exact multipliers for invoicing.
If you sell on Etsy or through print-on-demand, the fees are the part that moves your margin most, and this works them out per item: