Margin and markup: same profit, different base
Both numbers describe the same gross profit — the selling price minus what the item cost you — but they divide it by different things:
- Gross margin is profit as a share of the selling price. It tells you how much of each sale you keep to pay overheads and profit.
- Markup is profit as a share of the cost. It tells you how much you added on top of what you paid.
Because the price is always larger than the cost when you make a profit, the markup is always the bigger of the two percentages. Pick what you know from the “Calculate” options: cost and price to see the margin, or cost and a target margin or markup to get the price. The last option works backwards from a fixed selling price to the most you can pay for the item.
Margin and markup formulas
Margin = (P − C) ÷ P × 100
Markup = (P − C) ÷ C × 100
P = C ÷ (1 − m)
P = C × (1 + k)
k = m ÷ (1 − m) and m = k ÷ (1 + k)
- P
- selling price
- C
- cost of the item
- m
- gross margin as a decimal (35% = 0.35)
- k
- markup as a decimal (50% = 0.5)
Prices and costs are worked out to the cent. When the exact answer falls between two cents it is rounded to the nearest one (a half cent rounds up), and the margin and markup shown are for the rounded amount.
Worked example
You buy a product for $32.50 and sell it for $50.00.
- Gross profit: $50.00 − $32.50 = $17.50
- Gross margin: $17.50 ÷ $50.00 × 100 = 35%
- Markup: $17.50 ÷ $32.50 × 100 = 53.85%
Working the other way, a 35% margin on a $32.50 cost needs a price of $32.50 ÷ 0.65 = $50.00, and a 50% markup on the same cost gives $32.50 × 1.5 = $48.75, which is a margin of only 33.33%.
The classic pricing mistake
Suppose you want a 35% margin and add 35% to the cost. On a $32.50 item that gives $32.50 × 1.35 = $43.875, or $43.88. Your profit is $11.38 and your margin is $11.38 ÷ $43.88 = 25.93%, not 35%. Over a year of sales, that gap can be the whole difference between covering your overheads and not.
The fix is to divide instead of multiply: price = cost ÷ (1 − margin). Common conversions:
| Gross margin | Markup needed |
|---|---|
| 10% | 11.11% |
| 25% | 33.33% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100% |
| 75% | 300% |
Margins climb slowly as markups rise: doubling the cost (a 100% markup) is a 50% margin, and even a 300% markup is only a 75% margin. A margin can never reach 100%, but a markup has no upper limit.
Gross margin versus net margin
On an income statement, subtracting the cost of sales from revenue gives gross profit, sometimes itself called gross margin. Operating expenses, interest and taxes are subtracted after that to reach net profit (net income). This calculator works at the gross level, per item: the cost you enter should be what the item itself cost you, such as the purchase price, materials or direct production cost.
A healthy-looking gross margin can still produce a net loss if overheads are high. To see how many units you need to sell to cover your fixed costs, use the break-even calculator.
Margins are calculated on prices before sales tax. If you quote prices including tax, remove the tax first — the sales tax calculator can do that. For a price after a percentage off, see the discount calculator.
Frequently asked questions
What is the difference between margin and markup?
Both use the same profit, the price minus the cost. Margin divides it by the selling price, markup divides it by the cost. An item bought for $32.50 and sold for $50 has a $17.50 profit, a 35% margin and a 53.85% markup.
How do I set a price for a target margin?
Divide the cost by 1 minus the margin as a decimal. For a 35% margin on a $32.50 cost, the price is $32.50 ÷ 0.65 = $50.00. Adding 35% to the cost instead gives $43.88, which is only a 25.93% margin.
How do I convert markup to margin?
Divide the markup by 1 plus the markup, using decimals. A 50% markup is 0.5 ÷ 1.5 = 33.33% margin, and a 100% markup is 50% margin. To go from margin to markup, divide the margin by 1 minus the margin.
Can a margin be more than 100%?
No. Margin is profit as a share of the price, and profit can only equal the whole price if the item cost nothing. Markup has no such limit: selling a $10 item for $40 is a 300% markup but a 75% margin.
Is gross margin the same as profit margin?
Not quite. Gross margin only subtracts the cost of the goods sold. Net profit margin also subtracts overheads such as rent, wages and marketing, plus interest and taxes, so it is always lower for a business with running costs.
Sources
Last reviewed September 19, 2026