Calculate profit margin and markup percentage from cost and selling price, or find the required selling price.
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Many people confuse "profit margin" and "markup," two related but genuinely different pricing concepts: profit margin is the difference between selling price and cost, divided by the selling price, expressing profit as a percentage of what the customer paid; while markup is that same difference divided by the cost itself, expressing profit as a percentage of what the business paid. As a mathematical consequence, markup is always numerically higher than margin for the same transaction — a product costing $60 and selling for $100 has a 40% margin ($40 profit ÷ $100 selling price) but a 66.7% markup ($40 profit ÷ $60 cost), and confusing the two when setting prices is a well-documented source of underpricing, since a business aiming for a "50% margin" but mistakenly applying a 50% markup calculation will end up with a lower actual margin than intended. This tool also lets you calculate the required selling price directly if your goal is achieving a specific target profit margin, which is the more common and more useful direction when pricing a new product from scratch.
Two numbers that sound almost interchangeable — profit margin and markup — actually measure the same profit against two different denominators, and mixing them up when setting prices is one of the most common, and most quietly costly, pricing mistakes small businesses make.
Profit margin measures profit as a percentage of the selling price: (selling price − cost) ÷ selling price. It answers the question "of every dollar a customer pays me, how much is profit?" — directly comparable to revenue and useful for understanding overall business profitability relative to sales.
Markup measures the exact same dollar profit, but as a percentage of cost instead: (selling price − cost) ÷ cost. It answers a different question — "how much am I adding on top of what I paid?" — which is often the more intuitive way retailers and wholesalers think about pricing when starting from a known cost and deciding what to charge.
Because markup is calculated against the smaller number (cost) and margin against the larger number (selling price), markup is always mathematically higher than margin for the identical transaction. A 50% markup corresponds to only a 33.3% margin, not 50% — a gap that grows even larger at higher percentages, and one that catches out anyone assuming the two terms are interchangeable when setting a pricing target.
The practical risk shows up clearly when a business decides it wants to "make 50% profit" and mistakenly applies a 50% markup calculation instead of correctly working out the markup needed to actually achieve a 50% margin — which would require closer to a 100% markup. The resulting price ends up lower than intended, and the business ends up with a genuine margin well below its actual target without necessarily realizing why, simply because the wrong formula was applied to the right goal.
Margin is profit as a percentage of the selling price; markup is profit as a percentage of the cost price — they use different denominators and will always give different numbers for the same sale.
Markup is often used when setting a price from cost, while margin is often used when analyzing overall profitability — many businesses track both.
No — for any positive profit, markup percentage is always higher than margin percentage, since markup is calculated on cost while margin is calculated on the larger selling price.