What is markup?
Markup is the amount you add on top of what a product costs you, written as a percentage of that cost. If an item costs $50.00 and you sell it for $75.00, you added $25.00, which is 50.00% of the cost. Retailers often price this way because it starts from a number they know: what they paid.
What is gross margin?
Gross margin is the same profit written as a percentage of the selling price. On the same sale, $25.00 is 33.33% of the $75.00 price. Margin tells you how much of each dollar a customer pays is left after the product cost, which is why it is the number used to compare businesses and products.
Gross margin only subtracts the product cost. It is not net profit margin, which also subtracts shipping, packaging, platform and payment fees, advertising and other costs.
Markup vs margin
They use the same profit but divide by different numbers: markup divides by cost, margin divides by price. Because the price is bigger than the cost, margin is always the smaller percentage when the profit is positive.
- A 50% markup makes the price 1.5 times the cost: $50.00 becomes $75.00. The gross margin is only 33.33%.
- A 50% margin makes the price 2 times the cost: $50.00 becomes $100.00. That is a 100.00% markup.
| Percent | As a markup, the margin is | As a margin, the markup is |
|---|---|---|
| 10% | 9.09% | 11.11% |
| 20% | 16.67% | 25.00% |
| 25% | 20.00% | 33.33% |
| 30% | 23.08% | 42.86% |
| 40% | 28.57% | 66.67% |
| 50% | 33.33% | 100.00% |
| 75% | 42.86% | 300.00% |
| 100% | 50.00% | No finite price |
How to calculate markup
Gross profit = selling price − product cost
Markup % = gross profit ÷ product cost × 100
For a cost of $50.00 and a price of $75.00: gross profit is $25.00, and markup is $25.00 ÷ $50.00 = 50.00%. If the cost is 0, markup is not defined, because you cannot divide by zero.
How to calculate gross margin
Gross margin % = gross profit ÷ selling price × 100
Cost-to-price ratio % = product cost ÷ selling price × 100
For the same sale: $25.00 ÷ $75.00 = 33.33%. The cost-to-price ratio is 66.67%, and margin is always 100% minus that ratio. A selling price of 0 leaves the margin undefined.
Selling price from target markup
Selling price = product cost × (1 + markup % ÷ 100)
To mark a $50.00 product up by 40%, multiply by 1.40 to get $70.00. The gross margin on that price is 28.57%, not 40%.
Selling price from target margin
Selling price = product cost ÷ (1 − margin % ÷ 100)
For a 40% margin on a $50.00 product, divide by 0.60. The exact price is 83.3333, so the calculator shows $83.34, rounded up to the next cent. At that price the margin is 40.00%, at or just above the target, and the markup is 66.68%. A target margin of 100% has no finite price when the cost is above 0, so it is not accepted.
Worked examples
| Cost $50.00, selling price $75.00: gross profit | $25.00 |
|---|---|
| Markup | 50.00% |
| Gross margin | 33.33% |
| Cost-to-price ratio | 66.67% |
| Cost $80.00, selling price $60.00: gross profit (a loss) | -$20.00 |
| Markup | -25.00% |
| Gross margin | -33.33% |
| Cost $19.99, 40% margin: exact price 33.3167, rounded up to | $33.32 |
| Margin at the rounded price | 40.01% |
A negative markup and margin mean the price is below cost. Rounding up to the cent can raise the margin slightly above the target but never leaves it below.
Common pricing mistakes
- Treating a markup as a margin. Adding 40% to cost does not give a 40% margin.
- Quoting a margin target but pricing with a multiplier on cost, or the other way round.
- Forgetting that a 100% margin is impossible for a product that costs anything.
- Reading gross margin as profit. Shipping, fees, advertising and tax come out of it.
- Rounding the price down, which can leave the margin just under the target.
- Comparing a competitor's markup with your margin, or the reverse.
When to use a full profit calculator
This page works from product cost alone, which suits quick pricing and comparing products. Once you sell online, shipping, packaging, platform and payment fees and advertising often take a large share of each sale. To see what you actually keep, use the E-commerce Profit Calculator. To find the price for a target net margin after those costs, use the Selling Price Calculator, and to check what ROAS your advertising needs, use the Break-even ROAS Calculator.
Frequently asked questions
Is a 50% markup the same as a 50% margin?
No. A 50% markup adds half the cost on top, so the price is 1.5 times the cost and the gross margin is 33.33%. A 50% gross margin means half the price is profit, so the price is 2 times the cost, which is a 100% markup.
Why is markup always bigger than margin?
Both divide the same profit, but markup divides by cost and margin divides by the selling price. The price is the cost plus the profit, so it is larger than the cost, and the same profit is a smaller share of it. This holds whenever the profit is positive.
How do I get a 40% margin?
Divide your product cost by 0.60, which is 1 minus the margin. For a cost of $50 the price is $83.33 before rounding up to the next cent. Multiplying the cost by 1.40 would only give a 28.57% margin.
What happens when the cost is zero?
Markup is a percentage of cost, so it is not defined when the cost is 0. Gross margin is still defined for a price above 0 and equals 100%. The calculator says so instead of showing a made-up number.
Why can't I use a 100% target margin?
A 100% margin would mean the whole price is profit, which only happens with a cost of 0. For any cost above 0, a higher price pushes the margin closer to 100% but never reaches it, so no finite price exists. Target a margin below 100%.
Is gross margin the same as net profit margin?
No. Gross margin here only subtracts the product cost. Net profit also subtracts shipping, packaging, platform and payment fees, advertising and other costs, so it is lower. Use the E-commerce Profit Calculator to see net profit per order.
Why is the price rounded up?
Prices are in whole cents, and rounding down could leave you slightly under your target. The calculator rounds up to the next 0.01, then re-checks the margin or markup at that price, which is therefore at or just above your target.
What does a negative markup or margin mean?
The selling price is below the product cost, so you lose money on each unit. For a cost of $80 and a price of $60 the gross profit is −$20, the markup is −25% and the gross margin is −33.33%.