Margin and markup calculator
Margin and markup are different numbers, and confusing them is one of the most expensive habit in small business pricing. This shows both at once — and works backwards from the margin you need.
The two formulas, and why the difference matters
Margin and markup both express the same profit, but against different denominators — and that difference is large enough to make a profitable idea look attractive when it is not.
- Margin (%) = (price − cost) ÷ price × 100. Answers: “of every euro or dollar a customer pays me, how much is left?”
- Markup (%) = (price − cost) ÷ cost × 100. Answers: “how much more than my cost am I charging?”
A common and costly error: a business targets a 40% “markup” on a landed cost of 100, sets the price at 140, and then finds the actual margin is 28.6% — the amount remaining on each sale is well below what the plan assumed. Whenever someone says “we work on a 40% margin”, it is worth confirming which one they mean.
| Cost | Markup applied | Price | Actual margin |
|---|---|---|---|
| 100 | 20% | 120 | 16.7% |
| 100 | 40% | 140 | 28.6% |
| 100 | 67% | 167 | 40.1% |
| 100 | 100% | 200 | 50.0% |
What belongs in the cost field
The cost field decides whether the answer is useful. Include everything that varies with each unit sold:
- Landed cost — supplier price plus freight, insurance, duty and any import tax you cannot recover.
- Payment processing fees, which are typically a percentage of the sale price plus a fixed amount.
- Outbound shipping you absorb, including the packaging.
- Marketplace or platform commission, if you sell through one.
- An allowance for returns, refunds and replacements — even 2–5% changes the answer.
- Any per-unit consumable or licence fee that only applies when a unit sells.
Do not include rent, salaries or software subscriptions: those are fixed costs, and they belong in the break-even calculator, where they can be divided across realistic volume. Mixing the two is how businesses end up convinced they are making money on every sale while losing it overall.
Using the target-margin field
Enter the margin your business needs — not the margin you would like — and the calculator returns the price that achieves it, together with the profit per unit at that price. Two habits make this more useful:
- Check it against the market. If the target-margin price is far above what buyers pay, the problem is not the formula; it is the cost structure or the offer. Either reduce the cost (see the landed cost levers) or change what is included at that price.
- Re-run it monthly. Freight, platform fees and payment charges move. A price set twelve months ago against last year's costs has quietly become a lower-margin product.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit as a percentage of the selling price. Markup is profit as a percentage of your cost. A product costing 70 and selling for 100 has a 30% margin and approximately 43% markup. Markup is always the larger of the two, which is why quoting markup while thinking margin leads to underpricing.
What margin should I aim for?
There is no universal answer — distribution businesses often run 15–30% gross margin, service businesses 40–60%, and software higher still. The practical test is whether your gross profit per unit, at realistic volume, covers your fixed costs with something left over. Use the break-even calculator to check that directly rather than comparing yourself to an industry average.
Should I include shipping and payment fees in the cost?
Yes. Any cost that is incurred specifically to deliver that unit belongs in the cost you are measuring margin against: inbound freight, duty and import tax that you cannot recover, outbound shipping you absorb, payment processing fees, packaging, and expected returns. Leaving them out produces a margin that looks healthy and behaves badly.
How do I hit a target margin?
Divide your cost by one minus the target margin. For a cost of 70 and a target margin of 40%, the price is 70 ÷ (1 − 0.40) = 116.67. The calculator does this for you in the target-margin field so you can see the price and the resulting profit per unit at the same time.