How to Calculate Profit Margin and Markup
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Margin and markup both describe profit, but against different bases, and mixing them up leads to pricing mistakes.
Definitions with an example
Profit = revenue − cost. Margin = profit ÷ revenue. Markup = profit ÷ cost.
If you sell something for 100 that cost you 60, profit is 40. Margin is 40 ÷ 100 = 40%. Markup is 40 ÷ 60 ≈ 66.7%.
Pricing for a target margin
Price = cost ÷ (1 − target margin). For a 40% margin on a cost of 60: 60 ÷ 0.60 = 100. Adding 40% to the cost would give 84 and only a 28.6% margin.
What this leaves out
These figures use only the cost you enter. Overheads, fees, taxes and returns reduce what you really keep, so include them in the cost if you want a realistic number.