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Start with the amount you are dividing by
Margin and markup describe the same difference between a selling price and a cost, but measure it against different amounts. Margin asks what share of the selling price remains after the selected cost. Markup asks how much has been added to that cost. A price can therefore have two different, equally correct percentages.
Write down cost, selling price, and the amount left before opening the Profit margin calculator. Label the currency and the quantity: a cost per box cannot be compared with a price per item. In the formulas below, cost and price refer to one item, in the same currency, on the same tax basis. The word profit means price minus the cost entered, rather than a promise about final business profit.
- Profit amount = selling price − cost.
- Margin (%) = profit amount ÷ selling price × 100.
- Markup (%) = profit amount ÷ cost × 100.
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Work through a $100 cost and $150 price
For this hypothetical item, $150 − $100 leaves $50. Dividing $50 by the $150 selling price gives a 33.33% margin. Dividing the same $50 by the $100 cost gives a 50% markup. Calling the result a 50% margin would describe a different price.
Enter 100 as cost and 150 as selling price in the calculator, then compare its result with the arithmetic. If your original target was a 50% margin, the example price would need to be $200: half of $200 covers the $100 cost and half remains. This is why a target should always be written as a margin or a markup, not simply as a percentage.
| Selling price | Profit amount | Margin | Markup |
|---|---|---|---|
| $125 | $25 | 20% | 25% |
| $150 | $50 | 33.33% | 50% |
| $200 | $100 | 50% | 100% |
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Turn a target percentage into a price
For a target margin, divide cost by one minus the margin written as a decimal. A hypothetical 40% margin on a $100 cost means $100 ÷ (1 − 0.40) = $166.666… before rounding. A 40% markup instead means $100 × (1 + 0.40) = $140. The second price produces a margin of only 28.57%.
You can also convert the percentages directly: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin), using decimals throughout. Thus a 0.50 markup gives a 0.3333… margin. These relationships assume a positive cost and price; a zero denominator makes the corresponding percentage undefined. A positive-cost product cannot achieve a 100% margin at a finite selling price.
Check the rounded price
If a hypothetical $166.666… target becomes a $166.67 displayed price, enter $166.67 back into the calculator. If it is rounded down to $166 instead, the margin becomes approximately 39.76%. Keep the rounded selling price in your final record.
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Recalculate after changing the offer
A discount changes the selling-price denominator as well as the profit amount. On the $150 example, a 10% discount produces a $135 price. With cost still $100, profit is $35, margin is approximately 25.93%, and markup is 35%. The original $50 profit falls by 30%, even though the selling price falls by 10%.
Run the original and discounted prices as separate scenarios. If you also add packaging, a delivery subsidy, or a fixed transaction fee to the selected cost, change that input too. A percentage fee depends on the selling price, so work out its amount for each scenario. Do not assume the calculator knows which expenses belong in your cost figure.
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Save the cost definition with the result
Two calculations can disagree because they measure different costs. A product-only cost answers a narrower question than a cost that also includes packaging, labor, and allocated overhead. Label the included items. Tax treatment varies by situation, so confirm the basis used by your records and apply it consistently to cost and selling price.
When comparing several sales, calculate an overall margin from total profit divided by total revenue. Simply averaging item margins gives a small sale the same weight as a large one. For example, a hypothetical $100 sale at 10% margin and a $900 sale at 30% margin produce $280 profit on $1,000 revenue: 28%, not the unweighted 20% average.
Finish with a short reproducible note: one item, selected costs $100, selling price $150, no discount, profit $50, margin 33.33%, markup 50%. Revisit the calculation when either the price or the included costs change. The result then remains useful when you compare offers or explain how a price was calculated.
Sources and further reading
These references support the definitions and limits discussed in this guide. Worked scenarios labeled as examples are illustrative.
- Business Victoria: margin and markupDefinitions of margin and markup and their different calculation bases. Numerical examples in this guide are hypothetical.
- Australian Government: choosing a pricing strategyBackground on identifying costs and considering discounts. Local tax or pricing rules are outside this arithmetic guide.