Margin vs markup: the difference that costs businesses money
Margin and markup describe the same profit from two directions:
- Markup is profit as a percentage of cost. It's how much you add on top.
- Margin is profit as a percentage of the selling price. It's how much of each sale you keep.
Buy something for $40 and sell it for $100, and you make $60 profit. That's a 150% markup but a 60% margin. Confusing the two is one of the most common pricing mistakes. Add a "40% markup" when you meant a 40% margin, and you'll keep only 28.6% of each sale.
Profit margin formulas
Use decimals in the formulas (40% = 0.40).
Worked example: pricing for a 40% margin
A product costs you $25 to make or buy. You want a 40% margin.
If you'd added 40% to the cost instead, you'd charge $35, keep $10 and end up with a 28.6% margin, nearly a third less profit than you planned. Over a year of sales, that gap is significant.
What is a good profit margin?
It depends heavily on the industry and on what the margin has to cover. A few general patterns:
- Resold physical goods often need gross margins of 30–50% or more to cover rent, staff, returns and marketing.
- Handmade products sold through marketplaces need room for fees on top. See our handmade pricing calculator.
- Services and digital products usually run much higher gross margins, because the cost of delivering one more unit is low. Time is the real constraint, so see the hourly rate calculator.
The more useful question is what margin you need. Add up your monthly overheads, estimate monthly sales, and make sure gross profit covers overheads with room left over.
Margin and markup conversion chart
| Margin | Markup | Price = cost × |
|---|---|---|
| 10% | 11.1% | 1.11 |
| 20% | 25.0% | 1.25 |
| 25% | 33.3% | 1.33 |
| 30% | 42.9% | 1.43 |
| 40% | 66.7% | 1.67 |
| 50% | 100% | 2.00 |
| 60% | 150% | 2.50 |
| 75% | 300% | 4.00 |
Notice that margin can never reach 100% (that would need a cost of zero), while markup has no upper limit.
Frequently asked questions
How do I calculate profit margin?
Subtract cost from selling price to get profit, then divide profit by the selling price and multiply by 100. Selling for $50 something that costs $30 gives $20 profit and a 40% margin.
Is a 50% markup the same as a 50% margin?
No. A 50% markup on a $10 cost gives a $15 price and a 33.3% margin. A 50% margin needs a $20 price, which is a 100% markup.
How do I find a selling price from a margin?
Divide the cost by (1 − the margin as a decimal). For a 30% margin on a $70 cost: 70 ÷ 0.70 = $100.
Should I include shipping and fees in cost?
Yes. Include every cost tied to one sale: materials or wholesale price, packaging, payment and marketplace fees, and any shipping you pay but don’t charge for. Leaving them out makes your margin look better than it is.
Last reviewed October 11, 2026. Results are estimates for planning and are not tax, legal or financial advice. Found a mistake? Tell us.