Many small business owners say “I put a 40% margin on everything” when they actually mean a 40% markup. The difference sounds small, but it changes your prices and your real profit. This guide explains both terms in plain language, with the formulas and examples you need.
To skip the maths, use the free Profit Margin Calculator, which shows profit, margin and markup together.
The short answer
- Margin is profit as a percentage of the selling price.
- Markup is profit as a percentage of the cost.
Because the selling price is always bigger than the cost (when you make a profit), the margin percentage is always smaller than the markup percentage for the same sale.
The formulas
Profit = Selling price − Cost
Margin % = Profit ÷ Selling price × 100
Markup % = Profit ÷ Cost × 100
Worked example
You buy a product for 60 and sell it for 100.
- Profit = 100 − 60 = 40
- Margin = 40 ÷ 100 × 100 = 40%
- Markup = 40 ÷ 60 × 100 = 66.7%
Same sale, same profit, two very different percentages.
Why the difference matters
Suppose you want a 40% margin but you add 40% markup to the cost of 60 instead. Your price becomes 84, your profit is 24, and your real margin is only about 28.6%. Across hundreds of sales, that gap adds up quickly.
How to set a price for a target margin
Selling price = Cost ÷ (1 − target margin ÷ 100)
For a 40% margin on a cost of 60: 60 ÷ (1 − 0.40) = 60 ÷ 0.60 = 100.
For a target markup instead: Selling price = Cost × (1 + markup ÷ 100). A 50% markup on 60 gives 90.
The Profit Margin Calculator can work out the selling price for either a target margin or a target markup.
Margin and markup conversion table
| Margin | Equivalent markup |
|---|---|
| 10% | 11.1% |
| 20% | 25% |
| 25% | 33.3% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% |
To convert yourself: markup = margin ÷ (1 − margin), and margin = markup ÷ (1 + markup), using decimals.
Don’t forget tax and discounts
Calculate margin on prices before sales tax or GST, since the tax is not your income. If you charge GST, the GST Calculator helps you separate it. Planning a sale? Check the effect on your price with the Discount Calculator and make sure the discounted price is still above your cost.
Frequently asked questions
What is a good profit margin?
It varies widely by industry. Grocery and fuel businesses often work on thin margins, while software and services can have much higher ones. Compare yourself with businesses in your own sector.
Can margin be more than 100%?
No. Margin is profit divided by price, and profit can never be larger than the price. Markup, however, can be well over 100%.
Is gross margin the same as profit margin?
Gross margin uses only the direct cost of the product. Net profit margin also subtracts expenses like rent, wages and marketing, so it is lower.
Try it: calculate your margin and markup for free.
