The formulas
- Gross profit = selling price − cost
- Markup % = profit ÷ cost × 100
- Margin % = profit ÷ selling price × 100
- Price from a markup = cost × (1 + markup ÷ 100)
- Price from a margin = cost ÷ (1 − margin ÷ 100)
The calculator needs at least one amount (the cost or the price). Markup and margin alone describe the same ratio twice, so they cannot give a price on their own.
Worked example
A print shop pays $60 for a batch of materials and wants a 40% margin. The price is $60 ÷ (1 − 0.40) = $100. The profit is $40, which is a 40% margin but a 66.67% markup. If the shop had applied a 40% markup instead, it would charge $84 and earn a margin of only 28.57%. Mixing up the two is one of the most common pricing mistakes.
Using the result
Once you have a price, put it on a quote so the customer can accept it before you start, then bill it with the invoice generator. If you sell your time rather than products, the hourly rate calculator starts from your costs and billable hours instead.
Frequently asked questions
What is the difference between markup and margin?
Both use the same profit, but divide it by different numbers. Markup divides profit by cost; margin divides it by the selling price. Because the price is always higher than the cost when you make a profit, the margin is always the smaller percentage.
What markup gives a 50% margin?
A 100% markup. If an item costs $50 and you sell it for $100, the profit is $50: that is 100% of the cost and 50% of the price. The formula is markup = margin ÷ (100 − margin) × 100.
Should the cost include overhead?
For gross margin, use the direct cost of the item or job: materials, the wholesale price, subcontractors. Rent, software and other overhead are paid from the gross profit, so a healthy gross margin has to be high enough to cover them.
Is sales tax part of the selling price here?
No. Use prices before sales tax or VAT. Tax is collected for the government and is not revenue, so including it would overstate both the margin and the markup.