Profit Margin Calculator

The mistake that costs real money

Markup and margin use the same profit figure and divide it by different numbers. That sounds pedantic. It is not, and businesses lose money on it every day.

• Markup divides profit by cost. How much you added on top of what you paid.
• Margin divides profit by price. What share of the money coming in you actually keep.

Buy at 60, sell at 100. The profit is 40 either way. But that is a 67 % markup and a 40 % margin. Same transaction, two very different-looking numbers.

How it goes wrong in practice

Someone is told to work on a 30 % margin. They take a cost of £70 and add 30 %, arriving at £91. But £21 profit on a £91 sale is a 23 % margin, not 30. To actually hit 30 % they needed to divide by 0.7, giving £100.

Across a whole price list, that error is the difference between a profitable year and a loss, and it is invisible until the accounts arrive.

price = cost ÷ (1 − margin)

To hit a target margin you divide. To apply a markup you multiply. Those are different operations and they give different prices.

The conversion

margin = markup ÷ (1 + markup)

• 25 % markup = 20 % margin
• 50 % markup = 33.3 % margin
• 100 % markup = 50 % margin
• 300 % markup = 75 % margin

Margin can never reach 100 %, because you cannot keep more than the whole selling price. Markup has no upper limit at all. If someone quotes a figure over 100, they are certainly talking about markup.

Which to use

Use markup when setting prices from a known cost — it is the operation you perform. Use margin when analysing performance, because it is comparable across products and it is what accounts and investors report.

Retail convention differs by sector, which is why the two get confused. Agree which one you mean before agreeing a number.

Common uses

• Setting a price from a cost and a target.
• Checking whether a discount leaves you profitable.
• Comparing product lines on margin.
• Translating a supplier's markup into your margin.

The working, step by step

Questions people ask

What is the difference between markup and margin?

Markup divides profit by cost; margin divides profit by price. Buy at 60 and sell at 100 and that is a 67 % markup but a 40 % margin.

How do I price for a target margin?

Divide, do not add. For a 30 % margin, price = cost ÷ 0.7. Adding 30 % to the cost gives only a 23 % margin.

Can margin be over 100%?

No. You cannot keep more than the whole selling price. Markup has no ceiling, so any figure over 100 is a markup.

Which one should I use?

Markup for setting prices from a cost, margin for analysing performance. Margin is what accounts report.

What is a 50% markup as a margin?

33.3 %. The formula is margin = markup ÷ (1 + markup).

This is arithmetic, not advice

Everything here is a calculation you could do on paper. It does not know your circumstances, your tax position, your other commitments or what else is going on in your life, and it is not regulated financial advice.

Real decisions involve things no calculator holds: fees, penalties, tax treatment, how secure your income is, what happens if rates move, and what you would do if something went wrong. For anything significant, talk to a qualified adviser who can see the whole picture.

Use these to understand the shape of a number and to check one you have been given.

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