What is the difference between margin and markup?

Margin divides the profit by the selling price. Markup divides the same profit by the cost. On a 60.00 cost sold at 100.00 the margin is 40 per cent and the markup is 66.7 per cent.

How do I price something to hit a target margin?

Divide the cost by one minus the margin as a decimal. For a 40 per cent margin on a 60.00 cost, divide 60 by 0.6 to get 100.00.

Is a 50 per cent markup the same as a 50 per cent margin?

No. A 50 per cent markup is a 33.3 per cent margin. A 50 per cent margin is a 100 per cent markup.

What is a good profit margin?

It depends entirely on the trade. Grocery retail runs on low single figures, software on very high ones. The useful comparison is your own margin last year, not somebody else's industry.

Does this account for tax?

No. Put in the net cost and the net price, with VAT or GST excluded from both, or the percentage will be wrong.

Profit Margin Calculator

Margin and markup are not the same number. Every result shows its working, so you can check it before you put it on a document.

Margin and markup are two different sums on the same two numbers

Margin is profit as a share of the price you sell at. Markup is the same profit as a share of what the item cost you.

Buy at 60.00 and sell at 100.00 and the profit is 40.00. The margin is 40 divided by 100, so 40 per cent. The markup is 40 divided by 60, so 66.7 per cent. One transaction, two correct percentages, and they are not interchangeable.

Quoting one when you mean the other is the expensive mistake in this calculator. Pricing at a 50 per cent markup when you intended a 50 per cent margin leaves you sixteen and a half points short on every sale.

Converting between them

Markup equals margin divided by one minus margin. Margin equals markup divided by one plus markup, with both expressed as decimals.

A 20 per cent margin is a 25 per cent markup.
A 25 per cent margin is a 33.3 per cent markup.
A 30 per cent margin is a 42.9 per cent markup.
A 40 per cent margin is a 66.7 per cent markup.
A 50 per cent margin is a 100 per cent markup.

The gap widens as the numbers grow, which is why the error is small enough to miss on cheap items and painful on expensive ones.

Pricing backwards from a margin you need

If you know the cost and the margin you want, the price is the cost divided by one minus the margin as a decimal.

A part that costs 60.00 sold at a 40 per cent margin has to be priced at 60 divided by 0.6, which is 100.00.

Adding 40 per cent to the cost instead gives 84.00 and a margin of 28.6 per cent, which is the same mistake wearing different clothes.

What this margin does not include

This is gross margin: the price less the direct cost of the thing sold. It is the right number for pricing a line on a quote.

It is not net margin, which comes after rent, wages, software, insurance, marketing and everything else that does not attach to a single sale. A healthy gross margin can still end in a loss.

For a service business the cost figure is usually the hours in the job at what those hours cost you, which is not the same as what you pay yourself.

A margin that survives a discount

Discounts come out of margin, not out of price, and they take more than they appear to.

An item with a 40 per cent margin discounted by 20 per cent does not end up at a 20 per cent margin. The price falls to 80.00 against a cost of 60.00, so the margin lands at 25 per cent.

Before agreeing to a discount, put the discounted price into this calculator against the same cost and read the margin that comes back.

Questions

What is the difference between margin and markup?: Margin divides the profit by the selling price. Markup divides the same profit by the cost. On a 60.00 cost sold at 100.00 the margin is 40 per cent and the markup is 66.7 per cent.
How do I price something to hit a target margin?: Divide the cost by one minus the margin as a decimal. For a 40 per cent margin on a 60.00 cost, divide 60 by 0.6 to get 100.00.
Is a 50 per cent markup the same as a 50 per cent margin?: No. A 50 per cent markup is a 33.3 per cent margin. A 50 per cent margin is a 100 per cent markup.
What is a good profit margin?: It depends entirely on the trade. Grocery retail runs on low single figures, software on very high ones. The useful comparison is your own margin last year, not somebody else's industry.
Does this account for tax?: No. Put in the net cost and the net price, with VAT or GST excluded from both, or the percentage will be wrong.