Profit Margin Calculator
Margin, markup and profit from any two numbers, with the conversion table.
Margin to markup, the quick reference
| Margin | Equivalent markup |
|---|---|
| 10% | 11.11% |
| 15% | 17.65% |
| 20% | 25% |
| 25% | 33.33% |
| 30% | 42.86% |
| 33.3% | 49.93% |
| 40% | 66.67% |
| 50% | 100% |
| 60% | 150% |
| 66.7% | 200.3% |
| 75% | 300% |
Margin and markup are never the same number except at zero. A 50% markup is a 33.3% margin, which is the mistake that quietly costs the most money.
Margin and markup are the same three numbers read two different ways, which is exactly why they get mixed up and why the mix up is expensive.
Margin is the share of the selling price that is profit. Markup is how much you added on top of what it cost you. Sell something for 150 that cost you 100 and you have a 50 percent markup, but only a 33.3 percent margin. Quote one when you meant the other and the money quietly goes missing.
Enter whichever pair of numbers you have. Cost and price, cost and the margin you need to hit, or cost and the markup you normally apply. All four figures come back at once, so there is nothing left to convert in your head. The table underneath maps common margins to their equivalent markups.
How the figures are worked out
Profit is the price minus the cost. Margin is that profit divided by the price, and markup is the same profit divided by the cost. When you enter a target margin instead of a price, the price is the cost divided by one minus the margin. With a target markup, it is the cost multiplied by one plus the markup.
To convert between them, markup = margin ÷ (1 − margin). A 20 percent margin needs a 25 percent markup, 30 needs 42.9, 40 needs 66.7 and 50 needs 100.
A worked example
A product costs $42 to make and ship, and you want a 35 percent margin. The price is 42 ÷ 0.65 = $64.62, which leaves $22.62 of profit. As a markup, that is 53.85 percent on cost.
Now put something on sale. An item that costs $60 and sells for $100 has a 40 percent margin. At 20 percent off, the price is $80, the margin falls to 25 percent, and the profit on each sale halves, from $40 to $20. You would need to sell twice as many just to stand still.
Mistakes that erode profit
Leaving costs out. Payment processing fees, packaging, shipping and returns all come out of the price. If they are not in the cost you enter, the margin shown is higher than the one you keep.
Averaging margins across products. A 60 percent margin on a small add-on and a 20 percent margin on the main item do not make a 40 percent business. Weight each product by its sales, or work from total revenue and total cost.
Confusing gross and net margin. The margin here is gross margin: it covers the cost of the item, not rent, salaries or software. Net margin, after those, is always lower.
Margin on a product is arithmetic. Margin on your time is not.
A fixed fee job only has a margin if you know what it cost you in hours. PomoTodo tracks time against each client and project, so the cost side of that sum stops being a guess.
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Questions
How do I calculate profit margin?
Subtract the cost from the selling price, then divide by the selling price. A product costing 100 and selling for 150 has a profit of 50, which divided by 150 gives a margin of 33.3 percent.
What is the difference between margin and markup?
Margin measures profit against the selling price, markup measures it against the cost. The same sale is always a smaller margin than markup. A 50 percent markup is a 33.3 percent margin, and a 100 percent markup is a 50 percent margin.
How do I work out the price for a target margin?
Divide the cost by one minus the margin. To make 40 percent on something that costs 60, the price is 60 divided by 0.6, which is 100. Choose the target margin mode above and it does this for you.
Why can a margin never reach 100 percent?
Margin is the share of the price that is profit, so getting to 100 percent would mean the item cost nothing. As the target margin approaches 100 the required price rises towards infinity, which is why the calculator stops short of it.