How to calculate profit margin
Profit margin is profit as a percentage of the selling price:
Margin = (price − cost) ÷ price × 100
A candle that costs you $6 to make and sells for $10 makes $4 profit. $4 ÷ $10 × 100 = a 40% margin: 40 cents of every dollar you take is profit before your other costs.
How to calculate markup
Markup is profit as a percentage of the cost:
Markup = (price − cost) ÷ cost × 100
The same candle has a $4 ÷ $6 × 100 = 66.7% markup.
Margin vs markup: why they’re different
Both use the same profit, but divide by different numbers, so markup is always the bigger figure. The mistake to avoid: adding a 30% markup and thinking you have a 30% margin. You don’t; you have 23.1%.
| Margin | Equals markup | Markup | Equals margin |
|---|---|---|---|
| 10% | 11.1% | 10% | 9.1% |
| 20% | 25% | 25% | 20% |
| 25% | 33.3% | 30% | 23.1% |
| 30% | 42.9% | 50% | 33.3% |
| 33.33% | 50% | 75% | 42.9% |
| 40% | 66.7% | 100% | 50% |
| 50% | 100% | 150% | 60% |
| 60% | 150% | 200% | 66.7% |
| 75% | 300% | 300% | 75% |
How to price for a target margin
Price = cost ÷ (1 − margin)
To make a 60% margin on a $4.80 item: 4.80 ÷ (1 − 0.60) = 4.80 ÷ 0.40 = $12.00. Use the “Cost + target margin” mode above to do this for any product.
What margin should you aim for?
It depends on what else the margin has to pay for: booth or rent fees, card fees, packaging, your time and everything else in the business. Work out those costs, then set prices so the margin covers them with profit left over. Gross margin (price minus product cost) is only the first layer; see revenue vs profit and what net income is for the rest.
Frequently asked questions
What’s the difference between margin and markup?
Margin is profit as a percentage of the selling price. Markup is profit as a percentage of the cost. A $6 item sold for $10 has a 40% margin and a 66.7% markup.
How do I calculate profit margin?
Profit margin = (price − cost) ÷ price × 100. For a $10 price and $6 cost: (10 − 6) ÷ 10 × 100 = 40%.
How do I price for a target margin?
Price = cost ÷ (1 − margin). For a 40% margin on a $6 cost: 6 ÷ 0.6 = $10.
Is a 50% markup a 50% margin?
No. A 50% markup is a 33.3% margin. Mixing them up is one of the most common pricing mistakes.