What is the difference between markup and margin?

Markup is profit divided by cost; margin is profit divided by selling price. A 32 unit sold with a 60% markup prices at 51.20, and the same 19.20 of profit is a 37.5% margin on that price. The two only match at a markup and margin of zero.

How do I convert a markup percentage to a margin percentage?

Divide the markup by one plus the markup, using decimals. A 50% markup becomes 0.5 divided by 1.5, which is 33.3% margin. A 100% markup, meaning you double the cost, always converts to exactly 50% margin.

What markup should I use for my product?

There is no universal answer; it depends on overhead, return rates and planned discounting. Categories with heavy markdown risk, like apparel, commonly run markups of 100% or more, while high-volume, low-touch categories like wholesale distribution often run 20-40%, because their profit comes from turnover rather than per-unit margin.

Does markup include tax and shipping?

Not in this calculator. Enter the landed unit cost, meaning what you actually paid to have the item ready to sell, and add any per-unit shipping, duty or packaging into that figure before applying the markup, otherwise the resulting price will undercharge for those costs.

Why does doubling the cost only give a 50% margin, not 100%?

Margin is measured against the selling price, and doubling the cost means the price is now twice the cost. Profit is exactly half of that price, which is a 50% margin even though the markup applied was 100%.

How do discounts affect my margin?

A discount is applied to the selling price, which shrinks the margin much faster than it shrinks the markup. A product priced at a 50% margin that goes on a 30% discount can fall to a margin in the low 20s or worse, so it is worth recalculating margin at the discounted price before running any sale.

Markup & selling price calculator

This calculator turns a unit cost and a markup percentage into a selling price, then shows the margin that price actually produces. Markup and margin describe the same profit using different denominators, and mixing them up is one of the most common pricing mistakes small sellers make: a 50% markup does not give a 50% margin, it gives a third.

Markup and margin are not the same number

Markup measures profit against cost: add 60% markup to a 32 unit and you charge 32 times 1.6, which is 51.20. Margin measures the same profit against the selling price: the 19.20 profit divided by 51.20 comes to 37.5%, not 60%. The gap between the two widens as the markup grows, because the denominator keeps changing.

A quick conversion table saves a lot of confusion at the till: a 25% markup gives a 20% margin, a 33.3% markup gives 25%, a 50% markup gives 33.3%, a 100% markup (doubling the cost) gives exactly 50%, and a 200% markup gives 66.7%. Markup will always read higher than margin once profit exists, and the two only meet at zero.

The formula behind the table is margin equals markup divided by one plus markup, both expressed as decimals. It is worth memorising because a supplier or a spreadsheet will quote one figure and a bank loan covenant or a franchise agreement will often demand the other.

Three pricing scenarios worked through

A boutique clothing shop buys a jacket for 45 and applies a 120% markup, standard for apparel with seasonal markdown risk. The price comes to 45 times 2.2, which is 99, and the margin works out at 54 divided by 99, or 54.5%. That cushion is there to absorb the stock that eventually gets marked down to clear.

A café prices a coffee that costs 4.50 in beans, milk and cup at a 300% markup, typical for a drink with high labour content built into the price. That gives 4.50 times 4, or 18.00 wait, that price is far too high for a coffee shop line item, which is exactly why unit economics on high-markup categories need checking against what a customer will actually pay rather than applied blindly from a spreadsheet template.

A wholesale distributor buying at 220 a unit and reselling on a thinner 35% markup prices at 220 times 1.35, or 297, for a margin of 77 divided by 297, about 25.9%. Distributors run on volume and low markups precisely because their margin, not their markup, needs to cover a much smaller slice of overhead per transaction than a boutique retailer's does.

Why the same markup can be right for one product and wrong for another

A markup has to cover more than the unit cost entered into this calculator. Rent, staff time, packaging, payment processing fees, and returns or spoilage all sit between the selling price and actual take-home profit, so a category with high wastage or high return rates needs a materially higher markup than one that sells straight through.

Markup also has to survive discounting. A retailer who plans to run a 30%-off sale needs enough margin left after the discount to still cover costs; working backward from the discounted price, not the full price, is the only way to check that a markdown season does not turn a listed profit into an actual loss.

Competitive pricing pressure is the other limit. This calculator tells you the price a given markup produces, not whether a customer will pay it; if the computed price sits well above what comparable sellers charge, the markup needs to come down or the cost side needs to shrink, because demand does not adjust to a spreadsheet.

Where the simple markup formula breaks down

The formula here assumes unit cost is a clean, fixed number. In practice unit cost often includes an averaged share of shipping, import duty, or currency conversion that moves between orders, so a markup calculated on last month's landed cost can be stale by the time this month's stock arrives.

It also assumes every unit sells at full markup. Once shrinkage, damaged stock, and end-of-season clearance are factored in, the blended margin actually realised is always lower than the markup applied at the till, sometimes by several points, which is why retailers track realised gross margin separately from planned markup.

Finally, the calculator prices a single unit in isolation. Bundled pricing, loyalty discounts, and volume rebates all change the effective price a customer pays without changing the sticker markup, so a business selling mostly through promotions should treat this figure as a ceiling rather than the number that lands on the bank statement.

Recordkeeping and tax timing to keep in mind

In the United States, cost of goods sold used to compute margin for pricing purposes should line up with the cost of goods sold definition used on a Schedule C or business tax return, so that the markup a business plans around and the profit the IRS actually taxes are calculated from the same cost base.

Retail benchmarks for gross margin vary sharply by category and are published with a lag; US Census Bureau retail trade data for a given year is typically not final until well into the following year, so use last year's published benchmark as a rough guide rather than assuming it reflects current supplier costs.

VAT- and sales-tax-registered businesses should price and record margin on the pre-tax amount. Building a markup on a cost that already includes recoverable input tax, or on a price that already includes sales tax collected on behalf of the government, overstates the real profit line.

Frequently asked questions

What is the difference between markup and margin?: Markup is profit divided by cost; margin is profit divided by selling price. A 32 unit sold with a 60% markup prices at 51.20, and the same 19.20 of profit is a 37.5% margin on that price. The two only match at a markup and margin of zero.
How do I convert a markup percentage to a margin percentage?: Divide the markup by one plus the markup, using decimals. A 50% markup becomes 0.5 divided by 1.5, which is 33.3% margin. A 100% markup, meaning you double the cost, always converts to exactly 50% margin.
What markup should I use for my product?: There is no universal answer; it depends on overhead, return rates and planned discounting. Categories with heavy markdown risk, like apparel, commonly run markups of 100% or more, while high-volume, low-touch categories like wholesale distribution often run 20-40%, because their profit comes from turnover rather than per-unit margin.
Does markup include tax and shipping?: Not in this calculator. Enter the landed unit cost, meaning what you actually paid to have the item ready to sell, and add any per-unit shipping, duty or packaging into that figure before applying the markup, otherwise the resulting price will undercharge for those costs.
Why does doubling the cost only give a 50% margin, not 100%?: Margin is measured against the selling price, and doubling the cost means the price is now twice the cost. Profit is exactly half of that price, which is a 50% margin even though the markup applied was 100%.
How do discounts affect my margin?: A discount is applied to the selling price, which shrinks the margin much faster than it shrinks the markup. A product priced at a 50% margin that goes on a 30% discount can fall to a margin in the low 20s or worse, so it is worth recalculating margin at the discounted price before running any sale.

Sources

IRS Publication 334, Tax Guide for Small Business — Defines cost of goods sold for Schedule C filers, the cost base that should match pricing calculations (2025 revision).
U.S. Census Bureau — Annual Retail Trade Survey — Publishes annual gross margin estimates by retail category; 2022 survey results released January 2024, with the program since folded into the Annual Integrated Economic Survey.