Margin and markup are different percents
Profit is the selling price minus the cost. On a cost of $50.00 and a price of $80.00, the profit is $30.00. Profit margin divides that profit by the selling price: 30 ÷ 80 × 100 = 37.5%. Markup divides the same profit by the cost: 30 ÷ 50 × 100 = 60%. The price is 1.6 times the cost. Both percents describe one sale. They are not interchangeable, and quoting a 60% margin when you mean a 60% markup overstates the margin.
Retail conversation often says “margin” for both. On a quote or a spreadsheet, pin it down: margin is on the price (the money you receive), markup is on the cost (the money you laid out). A 100% markup doubles the cost and is a 50% margin, because the profit is half of the new price. A 100% margin would mean the cost was zero.
Worked example: pricing from a target
You buy an item for $60.00 and you want either a 25% margin or a 25% markup. Those targets produce different shelf prices.
- Twenty-five percent markup: price = 60 × (1 + 0.25) = $75.00. Profit is $15.00.
- Twenty-five percent margin: the cost is 75% of the price, so price = 60 ÷ 0.75 = $80.00. Profit is $20.00.
- Check the margin on that second price: profit 20 ÷ price 80 = 25%.
- A target margin of 100% or more is impossible. The cost would have to be zero or negative. The calculator leaves that price blank.
What to leave out of the cost
The percentages are only as honest as the cost you type. If the cost is the supplier invoice and you also pay freight, packaging, and a card fee, those belong in the cost before you talk about margin. Leaving them out makes the margin look healthier than the bank account. This page does not guess your overhead. It divides the two numbers you enter.
Sales tax collected from a customer and sent to the state is not part of the selling price for a margin. Use the price before that tax, and the cost before any tax you can reclaim. A discount changes the price you actually receive. If you sell the $80 item at 25% off, the money you receive is $60, the profit on a $50 cost is $10, and the margin is 10 ÷ 60 × 100, about 16.7%, not the 37.5% on the undiscounted ticket.