Margin vs Markup: How to Calculate Profit Margin and Markup (Formulas & Examples)

Key takeaways

• The difference between margin and markup is the base: markup is profit as a percentage of a product’s cost, while margin is profit as a percentage of its selling price.
• The markup formula is (Selling price − Cost) ÷ Cost. The margin formula is (Selling price − Cost) ÷ Selling price.
• The same sale always has a higher markup than margin. A product that costs $18 and sells for $36 has a 100% markup and a 50% margin.
• To convert markup to margin, use Margin = Markup ÷ (1 + Markup). To convert margin to markup, use Markup = Margin ÷ (1 − Margin).
• To price for a target margin, divide cost by (1 − target margin). A $70 cost at a 30% margin needs a $100 price, not the $91 that a 30% markup gives.
• Profit margin can never reach 100%, but markup has no upper limit.
• Use markup to set prices from cost, and use margin to measure profitability and compare against industry benchmarks.

How do you calculate margin vs. markup, and what’s the difference between the markup and margin formulas? It starts with figuring out your product’s cost. From there, you can decide how to price it and determine markup and margin differences. Figuring out your product’s cost will depend on several factors. For example, whether or not you buy in bulk, source your products from different vendors for different prices, and so on. Once you calculate your cost of goods sold (COGS), you can use your cost and the markup vs margin formulas explained here to calculate your price.

And right now, that cost isn’t sitting still. In our State of Inventory Management 2026 survey of 400 operators, 63.2% said their material or product costs went up over the past year, and 64.5% said the same about freight. When your cost moves, your markup and margin move with it (whether you notice or not).

This is where the concept of markup comes in. Depending on where you search, you can get different answers for what markup is and what it has to do with something called margin (or gross profit margin).

Let’s start with a quick overview:

• Markup is the amount by which the cost of a product is increased in order to obtain the selling price. For example, a markup of $90 on a product that costs $110 would give a selling price of $200. That’s an 82% markup ($90 divided by the $110 cost).
• Margin is the profit you keep as a percentage of the selling price. Using the same example, a $200 selling price minus the $110 cost leaves $90 of gross profit. Divide that $90 by the $200 selling price and you get a 45% margin.

Same $90, two very different percentages. If you’re wondering how to untangle that web of M-words, you’ve come to the right place.

Let’s get into it!

What is the difference between margin and markup?

The difference between margin and markup is what you divide by. Markup divides your profit by the product’s cost, while margin divides that same profit by the selling price. Since cost is always smaller than price (as long as you’re making money), markup is always the bigger number for the same sale.

It’s a bit like measuring a road trip in miles and kilometers. The trip doesn’t change, but the number you say out loud does. Here’s how the two stack up side by side:

Now let’s break down each formula, starting with the one you’ll likely use first when pricing a product.

How do you calculate markup?

To calculate markup, subtract the product’s cost from its selling price, then divide the result by the cost. Multiply by 100 to express it as a percentage.

You can think of markup as the extra percentage you charge your customers (on top of your cost).

Markup formula

The markup percentage calculation formula looks like this:

Markup = (Selling price − Cost) ÷ Cost

Example: calculating markup

Now, let’s make the example a little more concrete. Let’s say the cost for one of Archon Optical’s products, Zealot sunglasses, is $18. That $18 is how much it costs Archon Optical to create a single pair of the Zealot. They will then turn around and sell each Zealot for $36.

If we run through that calculation, we arrive at a markup of 100%:

($36 − $18) ÷ $18 = 1.00, or a 100% markup

How to set a price using markup

However, some businesses might set their prices based on a specific pre-defined markup percentage. They’d have the costs ready and have particular markup percentages in mind to help them calculate a price.

How would we express the markup formula in this case? Let’s write this out:

Selling price = Cost + (Cost × Markup), or simply Cost × (1 + Markup)

Given a markup of 100% on the Zealot, that’s $18 + ($18 × 1.0) = $36.

Expressing markup as a percentage can be very useful. This way, you can guarantee that you generate a proportional revenue for each item you sell, even if, down the road, your cost changes or increases. This means the markups you set up at the beginning should scale well as your business grows.

Fixed markup strategies (percentage vs dollar)

The cost of manufacturing the Zealot may not always stay at $18 (actually, it definitely won’t). Maybe their manufacturing process has changed. Or maybe they’ve expanded and now operate from two different facilities and need more staff to manage the inventory across multiple locations. Whatever the case may be, the wise staff at Archon Optical will want to make sure that they constantly adjust prices to reflect the increase in cost.

This isn’t a hypothetical, either. Among the construction and trades businesses we surveyed, nearly 69% saw material costs climb over the past year.

This is where the concept of fixed markup comes in handy because it can help you automatically adjust your prices based on changes in cost. You could have cost and price as separate numbers that you input into your inventory spreadsheet or inventory management software, but it’s much easier to have them linked in the long run.

Defining your markup as a percentage above cost ensures that you continue earning sales revenue as costs increase. It also means you don’t have to keep going back to adjust your pricing. Manually adjusting your prices based on cost is plausible for a smaller business, but this quickly becomes untenable as your inventory expands to include hundreds of items.

Here’s what that looks like in practice. Say the Zealot’s cost rises 15%, from $18 to $20.70:

Gaining a markup of $18 on a $36 item is significantly different from a markup of $18 on an item priced at $55. A fixed markup percentage ensures that your earnings are always proportional to the price.

How do you calculate margin?

To calculate margin, subtract the product’s cost from its selling price, then divide the result by the selling price. The answer is your gross profit margin: the share of every sales dollar you keep after paying for the product itself.

Now that we’ve defined markup and how it helps you decide on a price, we should discuss the other big M-word: margin. The type of margin we’re talking about in this case is gross profit margin, which describes the profit that you earn on a product as a percentage of the selling price.

Margin formula

You would often write margin as a specific amount in currency or as a percentage. However, to calculate profit margin percentage, you always divide by the selling price:

Margin = (Selling price − Cost) ÷ Selling price

For example, to calculate gross profit margin for the Zealot sunglasses, here is what that looks like:

($36 − $18) ÷ $36 = 0.50, or a 50% margin

Same sunglasses, same $18 of profit. It’s a 100% markup but only a 50% margin, because this time we’re dividing by the $36 price instead of the $18 cost.

How to set a price using a target margin

What if you already know the margin you want and need to work backwards to a price? Divide your cost by 1 minus your target margin:

Selling price = Cost ÷ (1 − Target margin)

Let’s say Archon Optical wants a 60% margin on the Zealot. That’s $18 ÷ (1 − 0.60) = $18 ÷ 0.40 = $45. Double-check it with the margin formula: ($45 − $18) ÷ $45 = 0.60. Right on target.

Notice what you can’t do here: add 60% to the cost. $18 × 1.60 = $28.80, which is a 60% markup but only a 37.5% margin. (More on that very expensive mix-up shortly.)

How to keep the same margin when costs change

Use the same formula with your new cost. If the Zealot’s cost rises from $18 to $20.70 and Archon Optical wants to keep its 50% margin, the new price is $20.70 ÷ (1 − 0.50) = $41.40. Leave the price at $36 instead, and the margin quietly slips to 42.5%.

Here’s the part that surprises a lot of people: a fixed markup percentage and a fixed margin percentage are the same thing wearing different hats. A 100% markup will always produce a 50% margin, whatever the cost happens to be. So if you lock in a markup percentage, you’ve also locked in your margin.

How to convert margin to markup (and back)

To convert markup to margin, divide the markup by 1 plus the markup. To convert margin to markup, divide the margin by 1 minus the margin. Both formulas use decimals, so write 50% as 0.50 and 100% as 1.00.

Now you know how to calculate margin and markup, but what if you don’t have the price and cost of a particular product? What if you only know the markup percentage? Is there a formula to convert markup directly into margin?

The answer is yes, and we’ve written out the formulas below.

Conversion formulas

• Markup = Margin ÷ (1 − Margin)
• Margin = Markup ÷ (1 + Markup)

In general, we’d recommend that you still know your price and cost as real numbers when examining markup and margin, but if you’re just trying to do quick conversions, these formulas will do the trick.

With the formulas above, you’ll need to express your percentages as decimals, whether markup or margin. This means you write 100% as 1.00, 200% as 2.00, and so on.

Let’s take the example of a 50% margin and see how to express that value as markup:

• Markup = Margin ÷ (1 − Margin)
• Markup = 0.50 ÷ (1 − 0.50)
• Markup = 1.00

Therefore, a margin of 0.50 (50%) means a markup of 1.00 (100%).

It works for less tidy numbers too. Want a 42% margin? That’s 0.42 ÷ (1 − 0.42) = 0.724, so you’d need a 72.4% markup.

Margin to markup conversion chart

As you can see, once you have a number for margin in place, it’s straightforward to figure out markup. Since there’s a simple mathematical relationship between the two, you can even keep a cheat sheet handy, like the one below:

You can use the formulas above or this chart to quickly convert margin into markup or express markup as a profit margin. Notice how the gap between the two widens as the numbers climb. At a 10% margin, the markup is barely higher. At an 80% margin, it’s five times higher.

For a quick demonstration, watch a short video on how to convert margin into markup:

What is the most common margin vs markup mistake?

The most common mistake is applying a markup percentage when you meant to hit a margin percentage. Because markup is calculated on the smaller number (cost), a 30% markup only produces a 23.1% margin. That gap comes straight out of your profit.

Here’s how it usually happens. Your accountant (or your business plan) says you need a 30% gross margin. So you take a product that costs $70, add 30%, and price it at $91. Sounds right. But run the margin formula and you get ($91 − $70) ÷ $91 = 23.1%.

To actually hit 30%, you needed $70 ÷ (1 − 0.30) = $100.

That’s $9,000 less gross profit on just 1,000 units, or 30% less than you planned for. And nothing on the invoice will look wrong.

Small pricing gaps like this cost more than you’d think. McKinsey’s analysis of the average S&P 1500 company found that a 1% price increase, with volume held steady, would lift operating profits by about 8% (McKinsey). The same math works in reverse when your price is a few points lower than you meant it to be.

The fix is simple: if your goal is stated as a margin, keep it as a margin. Use Price = Cost ÷ (1 − Margin), or convert your target margin to a markup using the chart above, before you touch a single price.

What costs should you include before calculating markup or margin?

For gross margin and markup, include every cost it takes to get a product ready to sell: the purchase price, inbound freight, duties and tariffs, and any packaging or labor that goes into the product itself. Overhead like rent, marketing, and office wages belongs in net margin, not gross margin.

If you’re already confident you know your product’s cost, skip ahead to the next section; if not, read on!

In order to understand how to calculate margin or markup, it’s integral that you know exactly what your product costs. The cost of any product is more than just what you pay for it. The trick is knowing which costs belong in which number.

COGS vs landed cost vs fully loaded cost

Whichever level you use, be consistent. A margin calculated on landed cost and a margin calculated on fully loaded cost aren’t comparable, even though they’re both called “margin.”

Costs that belong in gross margin

• Freight and shipping: If you ship products in from a supplier, or send them out in trucks to stores around the city, you need to factor in the cost of freight charges, the shipping speed you pay for, and whether you add insurance.
• Duties and tariffs: Import fees are part of what it costs to get a product on your shelf. If you’re buying from overseas, how tariffs work has a direct effect on your landed cost.
• Packaging: It may seem small, but the packaging materials you use and the labor involved in packaging the products shouldn’t be ignored.
• Direct labor: Any wages, benefits, or other expenses tied directly to making or assembling the product in question need to be factored into its cost.
• Product development: Since the Zealot is a product that Archon Optical had to develop over time (it didn’t just materialize as a completed product), they need to account for all of the time that went into making it aesthetically pleasing while still blocking as many of the sun’s harsh rays as possible.

Costs that belong in net margin

• Overhead: Expenses such as rent, utilities, taxes, and insurance are all overhead costs. They’re real, but they’re spread across your whole business, not tied to a single unit.
• Marketing and advertising: Promotional materials and ad campaigns aren’t free. Account for them when you’re checking whether your overall pricing covers the business, not in each product’s gross margin.
• Inventory shrinkage: Although this one is often overlooked, inventory shrinkage is a real cost. In our survey, 80% of operators reported losing 1% to 5% of their inventory each year (inventory metrics to benchmark), so build some cushion into your markup to cover it. (Many businesses record shrinkage as part of COGS, so check with your accountant which bucket yours lands in.)
• Holding costs: Storing stock isn’t free either. 54% of the operators we surveyed put their inventory carrying costs above 10% of inventory value each year.

We’ve described the Zealot’s cost very simply so far, assuming Archon Optical makes it for a set cost and sells it at a fixed price. Of course, real life is a little more complicated than that. Once you have an accurate cost, you can plug it into the margin and markup formulas with confidence.

Margin or markup: which should your business use?

Use markup when you’re setting prices, because you know your cost first and markup works forward from it. Use margin when you’re measuring profitability, because financial statements, lenders, and industry benchmarks all report profit as a percentage of revenue. Most businesses end up using both.

When selling products, a business evaluating markup vs margin pricing must keep the ultimate goal of turning a profit in mind. The decision on how you lean on each of these pricing strategies depends on your business needs and goals.

Markup is a perfect way to ensure you generate revenue on each sale. Markup is good for getting started because, as you are getting things set up, you are keenly aware of the costs for your business, and you’re still learning about the kind of revenue you can bring in through sales.

As you get to know your business better and you start to look at reports on your sales, margin can help examine how much actual profit you’re making on each sale.

No matter which one you lean on, each has a blind spot. Markup always produces the bigger number, which can make a price look healthier than it really is. Margin needs a price to exist first, so it’s less handy in the moment you’re setting one. And whichever you use, pricing too high will make it harder to stay competitive and can send customers to take their business elsewhere.

Typical gross margins and markups by industry

Wondering how your numbers compare? NYU Stern professor Aswath Damodaran publishes average margins for U.S. public companies by industry each January. Here’s a selection of goods-based industries from the January 2026 dataset, with the equivalent markup calculated from each gross margin:

Source: Aswath Damodaran, Margins by Sector (US), NYU Stern, data as of January 2026. Equivalent markup calculated by inFlow using Markup = Margin ÷ (1 − Margin).

Keep in mind these are averages for large, publicly traded companies with very different product mixes and buying power than most small businesses. Use them as a sanity check, not a target. Your competitors’ pricing, your value proposition, and your own overhead will tell you more about where your markup should land.

Gross margin vs net margin: what’s the difference?

Gross margin shows your profit after the cost of the product itself. Net margin shows what’s left after every expense, including overhead, marketing, interest, and taxes. Markup almost always describes gross profit, so compare it to gross margin, not net margin.

The gap between the two is bigger than most people expect. Across U.S. public companies (excluding financials), the average gross margin is 34.4%, but the average net margin is just 8.6%, according to the same Damodaran dataset. For retail distributors, it’s 30.6% gross and 6.1% net. In other words, only about a quarter of gross profit survives to the bottom line.

That’s why a healthy-looking markup isn’t the finish line. If you want to dig into how these numbers land on your books, our guides to the gross profit margin formula and inventory accounting are good next stops.

Margin vs. markup explained (video)

If you’re one of the millions of people who prefer to learn through the magic of video, we’ve got you covered! Here is a video that walks through how to calculate margin and markup, using the same formulas covered above.

In the video, we cover the difference between markup and margin, how to calculate each one from a product’s cost and price, and why the same sale produces two different percentages.

How to automate markup-based pricing with inFlow

inFlow links each product’s cost to its selling price, so you can lock in a markup percentage and let prices update as your costs change, or lock in a price and let the markup move instead.

If your costs change often, then you probably spend a lot of time making price adjustments. Our inventory software can help you change prices, and your markup, with just a few clicks. Here’s how it works:

• Fixed price or fixed markup, per pricing scheme. With a fixed price, your price stays put and inFlow recalculates the markup as your cost changes. With a fixed markup, the price follows your cost. For example, with a 50% markup on a $4 cost, the price is $6. If the cost rises to $4.25, inFlow adjusts the price to $6.38 (how to enter cost, price, and markup).
• A cost that reflects what you actually paid. inFlow builds each product’s cost from the vendor’s unit price (after discounts), plus freight, non-vendor costs like duties and tariffs, and service fees on the purchase order. Taxes on the purchase order aren’t included (how inFlow calculates product cost).
• Bulk changes. You can switch many products to fixed markup at once with a product details import, or reprice a whole pricing scheme based on cost with the Price Changing Tool (currently in beta).
• Profit reporting. The Sales Order Profit Report shows the estimated profit on each order, so you can check that your markups are turning into the margins you expected.

You can set fixed prices for your products, but a fixed markup will always keep your price a consistent percentage above your cost (which, as we covered earlier, also keeps your margin consistent). If you have to update prices on multiple products weekly, this simple feature could save you hours. And you’ll rest easier knowing that your business is making money on each sale, even as your costs change.

But that’s not all. inFlow can help you with many other crucial tasks like:

• Setting reorder points
• Integrating your shipping
• A complete barcoding system

To learn more about barcodes and how to set up a barcode system, read our Ultimate Barcoding Guide.

FAQ

Is a 50% markup the same as a 50% margin?

No. A 50% markup means your price is 50% above your cost, which works out to a 33.3% margin. A 50% margin means half the selling price is profit, which requires a 100% markup. For example, an item that costs $10 sells for $15 with a 50% markup, but needs to sell for $20 to earn a 50% margin.

Can profit margin be more than 100%?

No. Margin is profit divided by selling price, and your profit can never be larger than the price itself, so margin always stays below 100%. Markup has no ceiling, though. A product that costs $5 and sells for $20 has a 300% markup, but only a 75% margin.

How do you calculate selling price from cost and margin?

Divide the cost by 1 minus your target margin: Selling price = Cost ÷ (1 − Margin). For example, if a product costs $7 and you want a 15% margin, the price is $7 ÷ 0.85 = $8.24. Don’t add the margin percentage to cost, since that gives you a markup and a lower margin than you planned.

What is a good markup or margin for my industry?

It varies widely. Based on NYU Stern data from January 2026, U.S. public companies outside of finance average a 34.4% gross margin (about a 52% markup). Engineering and construction firms average closer to 15.5%, while apparel companies average 56.9%. Research your competitors’ pricing and factor in your overhead and value proposition.

What is keystone pricing?

Keystone pricing means setting the selling price at double the cost. That’s a 100% markup, which equals a 50% margin. It’s a common rule of thumb in retail because it’s quick to calculate, but it isn’t right for every product. Competitive or high-volume items often can’t support it, while specialty items can support more.

Should I use the same markup for all products in my inventory?

Not necessarily. You may want to apply lower markups to high-volume, competitive products and higher markups to specialty or low-volume items. Consider factors like demand, competition, storage costs, and how quickly items sell. Just make sure the blended margin across everything you sell still covers your overhead.

Can I automate markup calculations in my business?

Yes. Inventory management software can calculate prices automatically based on preset markup percentages. In inFlow, for example, a fixed markup updates a product’s selling price whenever its cost changes, which keeps your margins consistent without manual calculations or spreadsheet updates across hundreds of products.