Profit Margin vs Markup: How to Calculate Both and Set Prices
Learn the difference between gross margin and markup, how to convert one into the other, and how to price for a target margin, with a free calculator.
Published
Free tool: Profit Margin CalculatorMargin and markup both describe the profit on a sale, but they measure it against different numbers, and mixing them up is one of the most common pricing mistakes. A 50% markup is not a 50% margin. This guide explains both, how to convert between them and how to set a price for the margin you want, using the free Profit Margin Calculator.
The formulas
- Profit per unit = price − cost
- Gross margin = profit ÷ price
- Markup = profit ÷ cost
Example: a product costs $60 and sells for $100:
- Profit: $40
- Gross margin: $40 ÷ $100 = 40%
- Markup: $40 ÷ $60 = 66.7%
Selling 100 units brings in $10,000 of revenue and $4,000 of profit.
Why a 50% markup isn't a 50% margin
Because margin divides by the larger number (the price), it's always smaller than the markup. Marking the $60 product up 50% gives a price of $90, which is only a 33.3% margin. To earn a 50% margin, you need to charge $120, a 100% markup.
| Gross margin | Markup needed |
|---|---|
| 20% | 25% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% |
| 60% | 150% |
| 75% | 300% |
The gap grows quickly at higher margins, so always confirm which one a supplier, buyer or price list means.
Pricing for a target margin
To hit a margin, divide the cost by one minus the margin:
Price = cost ÷ (1 − margin)
For a 40% margin on a $60 cost: $60 ÷ 0.60 = $100. To price from a markup instead: price = cost × (1 + markup), so a 50% markup on $60 is $90.
Gross margin isn't the whole story
Gross margin only covers the direct cost of what you sell. Rent, salaries, marketing and other overheads come out of it too, so net profit margin is lower. A margin that looks healthy per unit can still lose money if volume is too low to cover fixed costs; see How to Calculate Your Break-Even Point.
How to use the Profit Margin Calculator
- Open the Profit Margin Calculator.
- Choose a mode: I know cost and price, Price for a target margin or Price from a markup.
- Enter the cost per unit and the selling price, target margin or markup.
- Enter the units sold to see totals.
- Read the results: the profit per unit, the gross margin, the markup and the total profit, with a breakdown of each sale, a chart of the markup needed for each margin and a reference table.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit as a share of the selling price; markup is profit as a share of the cost. A $60 item sold for $100 has a 40% margin and a 66.7% markup.
How do I convert markup to margin?
Margin = markup ÷ (1 + markup). A 50% markup is 0.5 ÷ 1.5 = 33.3% margin. To go the other way, markup = margin ÷ (1 − margin).
What is a good profit margin?
It varies widely by industry. Retailers and grocers often work on thin margins, while software and services can run much higher. Compare yourself with businesses like yours.