How to Use This Tool
Enter your cost and whichever percentage you have. Both are always shown, because seeing them together is the point.
The only difference is the denominator
- Markup = profit ÷ cost. "I paid 100 and added 50%."
- Margin = profit ÷ price. "Of the 150 I took, 33.3% was profit."
Both describe the same 50 of profit on the same transaction. Price is always larger than cost, so margin is always the smaller percentage — and the gap widens as the numbers grow. A 20% markup is a 16.67% margin; a 100% markup is a 50% margin.
Which one people mean depends on where they sit. Buyers and category managers usually think in markup, because they start from what they paid. Accountants and investors think in margin, because it is a share of revenue and it is what appears on a profit and loss statement.
The expensive mistake
The problem arises when a target margin is applied as a markup. Told to hit 30% margin, adding 30% to a cost of 100 gives 130 — and 30 on 130 is a 23.08% margin, not 30%.
The correct price is 142.86, a markup of 42.86%. The 12.86 difference per unit is 12,860 across ten thousand units, and nothing in the process flags it: the price looks reasonable, the products sell, and the shortfall only appears as a margin that never quite reaches target.
The conversions are:
- markup → margin:
markup ÷ (1 + markup) - margin → markup:
margin ÷ (1 − margin)
Why margin above 100% is impossible
Margin is profit as a share of price, so it can approach 100% but never reach it — that would require the cost to be zero. Markup has no ceiling: 100% markup simply means doubling, and 900% markup is arithmetically fine.
So a quoted "200% margin" is nearly always a markup, and it is worth asking rather than assuming. The same figure means a 66.7% margin if it was a markup, which is a very different business.
This is gross margin, not profit
Everything here uses unit cost against selling price, which gives gross margin. It does not include:
- Selling costs — marketplace fees, payment processing, advertising.
- Fulfilment — shipping, packaging, and returns, which quietly consume margin in categories with high return rates.
- Overheads — rent, salaries, software.
- Discounts — the realised price is usually below list, and margin should be calculated on what was actually received.
A healthy gross margin can still lose money once those are counted, which is why gross margin is a pricing tool rather than a profitability measure.
