Markup and margin calculator

Markup and margin both describe the profit on an item, but they divide it by different things. Markup is profit as a percent of what you paid. Margin is profit as a percent of what the customer pays. Same profit, two different percentages.

Say a bottle of cooking oil costs you $8.00 and you sell it for $12.00. You make $4.00. Divided by your $8.00 cost, that is a markup of 50%. Divided by your $12.00 price, it is a margin of 33.3%. Neither is wrong. They answer different questions.

• Markup answers: how much did I add on top of my cost?
• Margin answers: out of every dollar a customer hands me, how many cents do I keep?

Because the price is always bigger than the cost, margin is always the smaller number. A 50% markup is a 33.3% margin. A 100% markup, where you double your cost, is only a 50% margin. Margin can never reach 100%, but markup can climb as high as you like.

Profit is the same in both: price minus cost. Everything else follows from it.

• Profit = price - cost
• Markup % = profit ÷ cost × 100
• Margin % = profit ÷ price × 100
• Price from a markup = cost × (1 + markup ÷ 100)
• Price from a margin = cost ÷ (1 - margin ÷ 100)

The last line is the one people get wrong. To reach a target margin you divide the cost, you do not multiply it. The calculator above does this for you whenever you type into the margin box.

To jump between the two percentages without a price: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 - margin), with the percentages written as decimals (50% is 0.5).

You buy a case of 24 notebooks for $36.00, so each one costs $1.50. You want to know what to charge.

Starting from a markup

If you decide on a 60% markup, the price is $1.50 × 1.60 = $2.40. Profit is $0.90 per notebook. The margin is $0.90 ÷ $2.40 = 37.5%. Selling all 24 earns $21.60 of profit on a $57.60 sales total.

Starting from a margin

Now say you want to keep 40 cents of every dollar, a 40% margin. The price is $1.50 ÷ 0.60 = $2.50. Profit is $1.00, and markup works out to $1.00 ÷ $1.50 = 66.7%. Type $1.50 as the cost and 40 as the margin and you will see exactly these figures.

Use whichever you will apply consistently, but know what each one tells you.

Markup is quicker at the shelf. If your supplier hands you a price list, multiplying by 1.5 or 2 is easy mental arithmetic. Many small shops set prices this way, and it works as long as you remember that a 50% markup does not mean you keep 50% of sales.

Margin is better for judging the business. Rent, wages, electricity and everything else are paid out of sales, not out of cost. Margin tells you what share of each sale is left to cover them, so it is the number to compare against your monthly expenses. It is also the number to track when you compare one product against another, because it is on the same scale for a $2 item and a $200 item.

A reasonable habit is to set prices with markup, then check the margin before you commit. For more on how this feeds into the bigger picture, see the gross profit guide.

• Mixing the two up. Quoting a margin and applying it as a markup leaves you under target on every sale.
• Using an old cost. When your supplier raises prices, your margin shrinks until you reprice. Recheck the cost whenever you restock.
• Ignoring discounts. A 10% discount is not a 10% cut in profit. On the $8.00 oil selling at $12.00, a 10% discount brings the price to $10.80 and the profit from $4.00 to $2.80. That is a 30% fall in profit.
• Forgetting damage and loss. If one item in twenty is damaged or goes missing, the other nineteen have to carry its cost. See where your stock goes.
• Rounding every price up. Rounding a $2.34 price to $2.50 is fine. Doing it blindly across the whole shop can make you uncompetitive on the items customers compare most.

This tool works on one item at a time and uses only your purchase cost and your price. It does not subtract rent, wages, delivery, card fees or tax, so the margin it shows is a gross margin. That is the right number for pricing a product. It is not the same as what you take home, which is covered in the gross profit guide.

Shopkeepa is built so that cost sits next to price on every product. That way your profit shows up in the reports as you sell, instead of in a calculator you have to open. See sales and profit reports.