This guide is practical and concise—examples first, formulas and caveats after. For quick calculations, jump to the linked calculator.
Margin vs Markup (With Quick Reference)
Margin and markup are not interchangeable. Mixing them leads to pricing that looks right but misses profit targets. Here’s the clear way to convert and avoid mistakes.
Core definitions
- Margin % = Profit ÷ Net Price
- Markup % = Profit ÷ Cost
Conversions (memorize these)
markup% = margin% / (1 − margin%)
margin% = markup% / (1 + markup%)Quick reference table
| Margin % | Markup % |
|---|---|
| 20% | 25% |
| 40% | 66.67% |
| 50% | 100% |
| 60% | 150% |
Worked examples
From target margin to price
Cost $10, target margin 40%. Net price = (cost) / (1 − 0.40) = $16.67. Profit = $6.67. Markup = 66.67%.
From target markup to price
Cost $10, markup 50%. Net price = $10 × (1 + 0.50) = $15. Profit = $5. Margin = 33.33%.
Where people slip
- Calling a 40% margin a “40% markup.” That underprices by 10%+.
- Ignoring platform fees in “cost”—your realized margin will be lower than target.
- Confusing VAT: margin is on net, not on the tax‑inclusive total.
Fees & VAT (fast rules)
- If a fee applies per sale, include it with cost when targeting a margin.
- VAT exclusive: add tax after you compute price; VAT inclusive: divide by (1+VAT) to get net.
Process you can follow
- Write down unit cost (include payment/platform fees if relevant).
- Pick a target margin for financial reporting consistency.
- Use the calculator to compute price. Sense‑check against market.
- If you must work in markup, convert it to margin for reporting.
Convert instantly with the Margin–Markup Converter or compute full pricing, fees, and VAT in the Profit & VAT Calculator.