About Profit Margin and Markup
Profit margin and markup are the two most common ways to describe the profitability of a sale — and they are almost always confused with each other. They use the same numbers (cost, revenue and profit) but divide by different denominators, so they always give different percentages. Understanding the difference is essential for pricing anything correctly.
The three core numbers
| Term | Meaning | Formula |
|---|---|---|
| Cost | What you paid to acquire or produce the item | — |
| Revenue | What you sold the item for | — |
| Profit | The difference between revenue and cost | Profit = Revenue − Cost |
Margin vs markup — the crucial difference
| Metric | Formula | Denominator |
|---|---|---|
| Margin | Profit ÷ Revenue × 100 | Revenue (what the customer paid) |
| Markup | Profit ÷ Cost × 100 | Cost (what you paid) |
Worked example: cost $60, sold for $100
- Profit = 100 − 60 = $40
- Margin = 40 ÷ 100 × 100 = 40%
- Markup = 40 ÷ 60 × 100 = 66.67%
The same sale has a 40% margin and a 66.67% markup. Both are correct — they describe the same transaction from different reference points. Markup tells you how much you added on top of the cost; margin tells you what fraction of the selling price is profit.
Conversion table
If you know one percentage, you can always find the other:
| Margin | Equivalent markup |
|---|---|
| 10% | 11.11% |
| 20% | 25.00% |
| 25% | 33.33% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100.00% |
| 60% | 150.00% |
| 70% | 233.33% |
| 80% | 400.00% |
Notice how the gap widens as margin increases. At 50% margin the markup is exactly 100% (double the cost). At 80% margin the markup is 400% (5× the cost). This is why talking about margins without specifying which one can lead to serious pricing mistakes.
Why margin cannot reach 100%
Because margin is calculated as a fraction of revenue, and profit can never equal revenue (unless cost is zero), margin approaches but never reaches 100%. A 99% margin means the cost is 1% of the selling price. Markup, on the other hand, has no upper bound — a $1 cost sold for $1000 is a 99,900% markup.
Target margin vs target markup
When setting prices, businesses usually work from a target margin (because margins compare directly to operating costs and profitability ratios) rather than a target markup. But many traditional retailers work from "keystone" or "2×" markup, which is a 100% markup — equivalent to a 50% margin.
To find the selling price from a target margin:
Revenue = Cost ÷ (1 − Margin)
For a $60 cost at a 40% target margin: 60 ÷ 0.60 = $100. For a 50% margin: 60 ÷ 0.50 = $120 (a 100% markup). For an 80% margin: 60 ÷ 0.20 = $300 (a 400% markup).
Common use cases
Retail Pricing
Set prices to achieve a target margin on every SKU.
SaaS Metrics
Report gross margin to investors and boards.
Wholesale & Distribution
Compare markup tiers across customer segments.
Restaurant Menu
Price dishes to a target food cost percentage.
Business Analysis
Check profitability of past sales and orders.
Negotiation
Find the maximum cost you can pay to hit a margin target.
Privacy and accuracy
This profit margin calculator runs entirely in your browser. All calculations happen locally in JavaScript with no server calls. Nothing is uploaded, stored or logged — safe for confidential pricing, cost data and business financials.