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How to Convert Markup Into Margin (or Margin Into Markup)

by Thomas | Last Updated: March 2nd, 2022 | Accounting | 10 comments

If you’re looking for a quick, straightforward way to convert markup into margin, this is it.

How to turn Markup into Margin | inFlow Inventory

We’ve written about the markup formula and the margin formula before, but our previous post was specifically for calculating these numbers when you already had the price and cost of that particular product. But a few readers contacted us with another question. 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.

How to convert markup into margin (or vice versa)

Markup = Margin / (1 - Margin) and Margin = Markup / (1 + Markup)

If you’re not familiar with the terms, this is 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. Which is an 82% markup (markup divided by product cost)
  • Margin is the selling price of a product minus cost of goods. Using the above example, the margin for a product sold for $200 with a cost of $110 would be $90. Which is a 45% margin (margin divided by selling price).

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, all you’ll need to do is express your percentage or markup or margin as a real number. This means that 100% is written as 1.00, 200% is written as 2.00, and so on.

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

Given Markup = Margin / (1 - Margin), then a Margin of 0.50 (50%) equals a markup of 1.00 (100%)

A quick table of margin and markup values

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

A table showing Markup values and their margin equivalents. Markup of 100% is a margin of 50%, a markup of 200% is a margin of 66.6%, etc.

You can use the formulas above or this quick table to quickly convert margin into markup, or express markup as a profit margin. But if you’re not sure what each number means, we have another post that goes into more detail.

inFlow Cloud automatically calculates markup for you

As easy as all that math is, you don’t actually have to crunch those numbers yourself.

If you manage your purchases and sales in inFlow Cloud, then the system will know your unit costs and sale prices. inFlow can automatically calculate your markup for you on a per-product basis. It can also make sure that your markup percentage is fixed. So you’ll always make money, even if it becomes more expensive to buy more stock. If you have multiple pricing schemes that have different markup values (like wholesale vs. retail pricing), you can also import multiple pricing schemes at once

In short, inFlow Cloud saves you time and takes care of the calculations as your costs change!

Click here to try inFlow now

No credit card required. Sign up now!

Thomas

Thomas

Thomas is a 100% human being who divides his time between writing medium-sized articles with his keyboard and taking large photographs with his camera.

10 Comments

  1. Macie

    I can’t thank you enough for your clear and concise articles on markup and margin! You are helping me so much in preparing for my Marketing Metrics exam, where I have to calculate all of these by hand. I would never have understood it as well as I do without you! Thank you so much!

    Reply
  2. Amarachi

    Thank you so much for the explanations….

    Reply
  3. josphat

    yes…
    i have read but understood definately nothing

    Reply
  4. Kwesi Afful

    Thank you very much.
    Am so happy to understand.

    Reply
  5. fahimeh bahrami

    thanks for good text. if the government want to regulate price of commodity market (necessary commodity)which of pricing model is good?

    Reply
  6. Chris Beech

    Hi, would you say Gross Margin once all other things have been taken into account is the main part? If so wouldn’t it just be easier to use a gross margin calculation on cost and have it all worked out?
    i.e. If we knew 45%GM was the target on costs the we use $110/.55=$200

    I’ve been using this method when quoting for some time but i never really understood why.

    TIA Chris

    Reply
    • Jared Plumb

      Hi Chris,

      That’s certainly one way of doing things if you know what your target gross margin is. Whether you use markup or margin it’s really up to you.

      All the best,
      Jared

      Reply
  7. Agung

    thankyou for the explanation, its work converting margin into markup when margin value under 100%, but what if margin value is same/more than 100%, can you help me with that? i got an error here, thankyou

    Reply
    • Jared Plumb

      Hi Agung,

      Thanks for reading. Since your margin would be your selling price minus the cost of goods your margin can not exceed 100%. Even if you got your products at $0 cost your margin would still be 100%. In this case your markup would be irrelevant because you can’t markup a product you never paid for.

      Hope this helps,
      Jared

      Reply
  8. Minanie Miniyichil

    it is good snacks

    Reply

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