Margin and markup: same profit, two percentages
You buy an item for $60 and sell it for $100. Your profit is $40. Is that a 40% profit or a 67% profit? Both, depending on what you divide by, and that is where most pricing mix-ups start. The calculator gives you the three usual ways to express the same profit at once, so you can use the one your supplier, your accountant or your spreadsheet expects.
- Markup is the profit divided by the cost: 40 ÷ 60 = 66.67%. It answers “how much did I add to what I paid?”
- Margin (gross margin, profit margin) is the profit divided by the selling price: 40 ÷ 100 = 40%. It answers “how much of each sale do I keep?”
- Multiplier is the selling price divided by the cost: 100 ÷ 60 = 1.667. It answers “what do I multiply my cost by?”
For the same item, the margin is always lower than the markup, and it can never reach 100% (that would mean the item cost you nothing). Markup has no ceiling: an item bought for $10 and sold for $50 has a 400% markup and an 80% margin.
Three calculations
The margin from two prices
Type what the item cost you and what you sell it for. The big number is the profit per item; below it, markup, margin and multiplier. Use prices before tax on both sides: the VAT or sales tax you collect goes to the tax authority, so it is not part of your margin.
The selling price for a target
Say you want a 40% margin on an item that costs $60. Do not add 40% to the cost: that gives $84, which is only a 28.57% margin. Divide by 1 minus the margin instead: 60 ÷ 0.6 = $100. If what you want is a 40% markup, then $84 is right (60 × 1.4). Tap “margin” in the sentence to switch to “markup”; the formula under the result shows which one you are using.
The price with a multiplier
Many shops price with a fixed multiplier. Doubling the cost, often called keystone pricing in US retail, is a multiplier of 2: a 100% markup and a 50% margin. A $25 item with a multiplier of 2.5 sells for $62.50, a profit of $37.50, a markup of 150% and a margin of 60%.
Quick conversions
To turn a margin into a markup: markup = margin ÷ (1 − margin). To turn a markup into a margin: margin = markup ÷ (1 + markup). A few common pairs:
| Margin | Markup | Multiplier |
|---|---|---|
| 20% | 25% | 1.25 |
| 25% | 33.33% | 1.333 |
| 33.33% | 50% | 1.5 |
| 40% | 66.67% | 1.667 |
| 50% | 100% | 2 |
| 60% | 150% | 2.5 |
Before you set your prices
- Discounts eat margin fast. On the $60 / $100 item, a 20% sale brings the price to $80 and the margin down from 40% to 25%. Check sale prices with the discount calculator, then come back here.
- Gross is not net. This is gross margin: the cost of the goods against the selling price. Rent, wages, shipping and card fees come out of that profit afterwards.
- Prices for customers. Once your price before tax is set, the VAT calculator gives the price including VAT for the UK, Ireland and other countries.
- Selling your time. Freelancers can turn a day rate or a yearly target into an hourly rate with the hourly to salary calculator.
A worked example
You resell a lamp that costs you $30 and want a 40% margin. The selling price is 30 ÷ 0.6 = $50 before tax, a profit of $20 per lamp. That same $20 is a 66.67% markup on your cost, and the multiplier is 1.667. If a competitor sells the same lamp at $45, your margin there would be 15 ÷ 45 = 33.33%: type $30 and $45 in the first calculation to see it.
Currency, in the bottom bar, switches the symbol between $, £, €, C$ and A$. Your last prices stay in your browser, and Share gives a link that opens the same calculation, useful to send a pricing question to a partner.