Quick reference
The fundamental difference
Both margin and markup measure how much profit you make on a product as a percentage. The difference is what you divide by.
Margin divides profit by the selling price. Markup divides profit by the cost price. Since the selling price is always higher than the cost price for a profitable product, margin is always a lower percentage than markup for the same transaction.
The confusion between the two causes a specific, consistent error: if you aim for a 30% margin but accidentally apply it as a markup, you set your price 30% above cost. That produces a 23% margin, not 30%. At 10.000 units sold at a cost of 50 each, that 7% shortfall represents 35.000 in missed profit per year. At scale, the error compounds significantly.
Gross margin formula
Markup formula
Worked examples
Margin = (100 - 60) / 100 x 100 = 40 / 100 x 100 = 40%. Markup = (100 - 60) / 60 x 100 = 40 / 60 x 100 = 66,7%. The same product with the same cost and selling price produces 40% margin and 66,7% markup. Both are correct. They measure the same profit (40) against different bases (100 vs 60).
Rearranging the margin formula: Price = Cost / (1 - margin rate) = 50 / (1 - 0,30) = 50 / 0,70 = 71,43. Verification: margin = (71,43 - 50) / 71,43 x 100 = 21,43 / 71,43 x 100 = 30%. The common error is to add 30% to the cost: 50 x 1,30 = 65. Verification of the error: (65 - 50) / 65 x 100 = 23,1%, not 30%.
Price = Cost x (1 + markup rate) = 50 x 1,30 = 65. Markup is straightforward: multiply the cost by one plus the markup rate. But note the resulting margin: (65 - 50) / 65 x 100 = 23,1%. A 30% markup produces only a 23,1% margin. If your financial model requires a 30% margin and you use markup instead, you will consistently underperform your profitability targets.
Calculate your profit margin and markup
Enter your cost and selling price to see both margin and markup, or enter a target margin to find the correct selling price.
Margin to markup conversion table
| Target Margin % | Equivalent Markup % | Price = Cost multiplied by |
|---|---|---|
| 10% | 11,1% | 1,111 |
| 15% | 17,6% | 1,176 |
| 20% | 25,0% | 1,250 |
| 25% | 33,3% | 1,333 |
| 30% | 42,9% | 1,429 |
| 40% | 66,7% | 1,667 |
| 50% | 100,0% | 2,000 |
| 60% | 150,0% | 2,500 |
Converting between margin and markup
The conversion formulas between margin and markup are:
Markup from Margin: Markup = Margin / (1 - Margin) Example: 30% margin = 0,30 / (1 - 0,30) = 0,30 / 0,70 = 0,4286 = 42,9% markup.
Margin from Markup: Margin = Markup / (1 + Markup) Example: 50% markup = 0,50 / (1 + 0,50) = 0,50 / 1,50 = 0,3333 = 33,3% margin.
The relationship between margin and markup is non-linear. As margin approaches 100%, the equivalent markup approaches infinity. A 90% margin requires a 900% markup (selling at 10 times cost). A 99% margin requires a 9.900% markup. This is why high-margin software businesses show markup percentages that seem astronomically large — their marginal cost of production is near zero.
Common mistakes that reduce profitability
Methodology
Margin and markup formulas in this guide follow standard accounting definitions as used in management accounting and financial reporting. Margin uses selling price as the denominator. Markup uses cost price as the denominator. The conversion formula Markup = Margin / (1 - Margin) is derived algebraically from the two definitions.
These calculations cover gross margin only, which excludes operating expenses, interest, and taxes. Net profit margin requires subtracting all costs from revenue.
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Frequently asked questions
Formula based on standard mathematical and financial methods. Results are for informational purposes. Last reviewed May 2026. Version 3.