If you’re looking for a quick, straightforward way to convert markup into margin, this is it!
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)
If you’re not familiar with the terms, this is a quick overview:
- Markup is the amount in which you increase a product’s cost 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 the 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, you’ll need to express your numbers as a percentage, 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:
Margin vs. markup 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 with a few values in mind, like the one below:
You can use the formulas above or this quick margin vs. markup chart to quickly convert margin into markup or express markup as a profit margin. But if you’re unsure what each number means, we have another post that goes into more detail.
Why margin vs. markup is important
If you’re selling products, the ultimate goal is to turn a profit. Both margin and markup are pricing strategies to ensure you do just that. The decision on which of these two you use depends on your business needs and goals.
Generally speaking, you would use margin in situations where the cost of production is consistent and stable. Consider using markup instead of margin if you have various products and their costs vary significantly.
No matter which one you choose, there are some downsides to each. Since the cost of a product is often a variable number and can change without warning, if you use margin, you might be pricing your products too low. On the flip side, if you use markup, you may be pricing too high as you constantly adjust for the changing costs. This will prevent you from staying competitive and ultimately result in customers taking their business elsewhere.
inFlow calculates markup automatically
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, the system will know your unit costs and sale prices. From there, the software 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 with different markup values (like wholesale vs. retail pricing), you can also import multiple pricing schemes simultaneously.
In short, inFlow saves you time and handles the calculations as your costs change! It makes selling your products online a breeze with over 95 integrations, including Amazon, Shopify, and Squarespace. If you’re using barcodes or thinking of implementing them, inFlow Cloud can help with that too. Read our Ultimate Barcoding Guide to learn everything about barcodes, including how to set up a barcoding system.
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!
Thank you so much for the explanations….
yes…
i have read but understood definately nothing
Thank you very much.
Am so happy to understand.
thanks for good text. if the government want to regulate price of commodity market (necessary commodity)which of pricing model is good?
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
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
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
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
it is good snacks
This was the most simplest and straight answer i got after hours of checking.
Hey Risha,
Thanks for reading, and we’re glad we could help!
Cheers,
Jared