Margin vs markup – the difference explained
Both describe the same profit, but measured against different bases:
- Gross margin = profit ÷ selling price. It tells you what share of each sale you keep.
- Markup = profit ÷ cost. It tells you how much you added on top of what you paid.
Example: you buy an item for $40 and sell it for $100. Profit is $60. Margin is 60 ÷ 100 = 60%. Markup is 60 ÷ 40 = 150%. Same deal, very different percentages – which is why "I add 50% margin" and "I add 50% markup" lead to different prices.
Formulas
| To find | Formula |
|---|---|
| Gross profit | Price − Cost |
| Margin % | (Price − Cost) ÷ Price × 100 |
| Markup % | (Price − Cost) ÷ Cost × 100 |
| Price from target margin | Cost ÷ (1 − Margin %) |
| Price from markup | Cost × (1 + Markup %) |
| Markup from margin | Margin ÷ (1 − Margin) |
| Margin from markup | Markup ÷ (1 + Markup) |
Quick conversion table
| Markup | Margin | Markup | Margin |
|---|---|---|---|
| 10% | 9.1% | 50% | 33.3% |
| 20% | 16.7% | 75% | 42.9% |
| 25% | 20% | 100% | 50% |
| 33.3% | 25% | 150% | 60% |
| 40% | 28.6% | 200% | 66.7% |
What is a good profit margin?
It varies enormously by industry. Grocery retail runs on 1–3% net margins; software and consulting can exceed 60% gross. For a freelancer or service business, gross margin is usually high because the main "cost" is your time, so the number to watch is net margin after all overhead and taxes. Aim for a gross margin that leaves at least 10–20% net profit after everything is paid. Use the hourly rate calculator to make sure your time is priced to deliver that.
When quoting a job, work from cost upward: total the materials and hours, then apply your target margin using "Selling price from cost and target margin" mode. Put that price on the quote, not a number pulled from the air.
Frequently asked questions
Is 30% margin the same as 30% markup?
No. 30% markup on a $100 cost gives a $130 price and a 23% margin. To get a 30% margin you need a 42.9% markup ($142.86).
Can margin be more than 100%?
No. Margin is a share of the selling price, so it is always below 100% (you cannot keep more than the whole sale). Markup can be any positive number, since it is measured against cost.
What is the difference between gross and net margin?
Gross margin only subtracts the direct cost of the product or service. Net margin also subtracts overheads such as rent, software, marketing, salaries and taxes. This calculator gives gross figures.
How do I price with a target margin?
Divide the cost by (1 − target margin). For a $40 cost and a 40% margin: $40 ÷ 0.60 = $66.67. Choose "Selling price from cost and target margin" and the calculator does this for you.