Margin

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Margin and markup formulas

Profit = selling price − cost

Margin = profit ÷ selling price × 100

Markup = profit ÷ cost × 100

Example

You buy a lamp for 60 and sell it for 100. The profit is 40, the margin is 40 ÷ 100 = 40%, and the markup is 40 ÷ 60 = 66.7%.

Setting a price from a margin

Selling price = cost ÷ (1 − margin)

For a 40% margin on something that cost 60: 60 ÷ 0.6 = 100. A common mistake is to add 40% to the cost (84), which only gives a 28.6% margin.

Frequently asked questions

What's the difference between margin and markup?

Both compare profit with a price, but against different numbers. Margin is profit as a share of the selling price; markup is profit as a share of the cost. Buying at 60 and selling at 100 is a 40% margin but a 66.7% markup.

How do I turn a markup into a margin?

Margin = markup ÷ (1 + markup). A 50% markup is 0.5 ÷ 1.5 = a 33.3% margin. The other way round, markup = margin ÷ (1 − margin).

Can a margin be more than 100%?

No. Margin can't reach 100%, because that would mean the item cost nothing. Markup has no upper limit: selling something that cost 10 for 50 is a 400% markup.

Should I include tax?

Leave sales tax and VAT out of both numbers. Use the cost you paid without any tax you can reclaim, and the selling price before tax.