Enter any two of cost, price, margin %, or markup %, the rest are computed.
Gross margin
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(Price - Cost) / Price
Markup
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(Price - Cost) / Cost
Gross profit per unit
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Cost as % of price
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Your breakdown
Updates live as you type| Metric | Formula | Result |
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Same dollars, two different denominators
Margin and markup describe the exact same profit dollars, but they divide that profit by different bases, and confusing the two is one of the most common pricing errors in small business. Markup measures profit against cost: profit divided by what you paid. Margin measures profit against price: profit divided by what you charged. Because price is always larger than cost on a profitable sale, the margin percentage is always smaller than the markup percentage for the same transaction. This tool takes any cost and price you enter and reports both numbers side by side so the relationship is impossible to mix up.
A 40 dollar item sold for 100
The calculator loads with a cost of $40 and a price of $100. That makes the gross profit $60, and here is how the two ratios diverge from those identical $60.
The same $60 of profit reads as a 60 percent margin or a 150 percent markup depending on which base you use. A merchant who hears 150 percent and a CFO who hears 60 percent are describing the identical product. This is why the gap matters in practice: if a supplier tells you to apply a 50 percent markup and you instead set a 50 percent margin, you will underprice the item and quietly erode your profit on every unit you sell.
Which number to speak to whom
Use margin when you talk to investors, lenders, and accountants, because gross margin and net margin are the standard lines on an income statement and the figures analysts compare across companies. Use markup on the floor and with suppliers, because it answers the operational question of how much to add on top of a known cost. The expert habit worth building is to always state which one you mean. Saying simply "we run at fifty" is ambiguous and has cost plenty of businesses real money. Say "fifty percent margin" or "fifty percent markup" and the confusion disappears. Keep in mind too that these are gross figures. They sit above rent, payroll, marketing, and every other operating cost, so a healthy gross margin does not by itself guarantee the business is profitable at the bottom line.
A quick story shows why the distinction is not academic. Suppose a boutique buys candles for $40 and the owner decides she wants to "make 50 percent." If she means markup, she lists them at $60 and earns $20 a unit, a 33 percent margin. If she means margin, she lists them at $80 and earns $40 a unit, a 100 percent markup. Same $40 cost, same vague instruction, and a $20 swing in profit on every candle. Over a thousand units that is $20,000 of profit hanging on one undefined word. The fix costs nothing: write the metric next to the number on your price sheet, and when a vendor quotes a figure, ask which base they used before you build it into your pricing.
How do I convert markup to margin quickly?
Margin equals markup divided by one plus markup. A 150 percent markup converts to 1.5 divided by 2.5, which is 0.60, or a 60 percent margin, exactly matching the example above. Going the other way, markup equals margin divided by one minus margin, so a 60 percent margin is 0.60 divided by 0.40, which is 1.5, or 150 percent markup. A few familiar pairs are worth memorizing: a 50 percent margin is a 100 percent markup, and a 33 percent margin is a 50 percent markup.
If I want a target margin, what price do I set?
Divide your cost by one minus the target margin expressed as a decimal. To hit a 60 percent margin on a $40 item, divide $40 by 0.40, which gives a $100 price, the same figure the defaults use. A frequent and expensive slip is to instead multiply cost by the target margin, which produces a price far too low. Set price from cost divided by one minus margin and your stated margin will hold.