Profit, margin and markup: what is the difference?

Profit, margin and markup describe related but different figures. Margin uses the selling price as its base; markup uses cost. Confusing the two can produce the wrong price.

If an item costs $100 and sells for $150, profit is $50. That is a 33.33% margin on sales but a 50% markup on cost.

Calculate profit

profit = selling price - cost

If cost is $200 and selling price is $260, profit is $60 before overhead, fees and taxes.

Calculate profit margin

Margin asks what share of the selling price is profit:

margin = profit / selling price x 100

For cost of $100 and a selling price of $150:

50 / 150 x 100 = 33.33%

Calculate markup

Markup asks how much was added to cost:

markup = profit / cost x 100
50 / 100 x 100 = 50%

With positive profit, markup is higher because the same profit is divided by the smaller base.

Set a price for a target margin

Adding 30% to cost creates a 30% markup, not a 30% margin. On a $100 cost, a $130 price produces:

margin = 30 / 130 x 100 = 23.08%

To target a specific margin:

selling price = cost / (1 - target margin / 100)

For a 30% margin on $100 cost:

100 / (1 - 0.30) = 142.86

At $142.86, profit is $42.86, or 30% of the selling price.

Include the full cost base

Platform fees, payment processing, shipping, packaging, returns, discounts, taxes and overhead can reduce actual profit. The formulas explain the percentage relationships; they do not replace business accounting or tax analysis.

Use the percentage calculator to divide profit by the appropriate base. The guide to what percentage one number is of another explains the general operation. When pricing promotions, also review successive discounts.

Frequently asked questions

Are margin and markup the same?

No. Margin divides profit by selling price; markup divides it by cost.

How do I calculate a selling price for a target margin?

Use cost / (1 - margin as a decimal). Do not simply add the margin percentage to cost.

Should taxes be included?

That depends on the pricing and reporting convention. Separate taxes and all additional costs when measuring the profit retained by the business.