About This Tool
Profit is the lifeblood of any business, but confusing "margin" with "markup" is a common mistake that can cost you money. A 50% markup is NOT a 50% margin! Our Free Margin Calculator helps you price your products correctly by instantly converting between cost, price, margin, and markup. This tool allows you to solve for any variable needed for pricing decisions. Retailers pricing inventory, contractors bidding on jobs, and e-commerce sellers checking profitability can all use this calculator to ensure accurate pricing. Enter your cost and desired margin to find the perfect selling price, or input your cost and price to see exactly how much profit you are keeping. The calculator supports three modes: "Find Margin and Markup" when you know both cost and price, "Find Selling Price" when you know cost and your target margin or markup, and "Find Max Cost" when you know the price and need to determine the most you can pay for goods while maintaining profitability. A built-in cheat sheet provides quick reference conversions between common margin and markup percentages so you can make pricing decisions on the fly.
Margin vs. Markup: What Is the Difference?
While both margin and markup are used to measure profit, they look at the numbers from two completely different angles, which is why they produce different percentages. Gross Margin represents the percentage of the total sales revenue that is kept as profit. It answers the question: "For every dollar I sell, how many cents do I keep?"
Markup, on the other hand, is the percentage added to the cost price to determine the selling price. It answers the question: "How much did I mark up this product above its cost?"
Example: You buy a widget for $100 and sell it for $150.
- Your Profit is $50.
- Your Markup is $50 divided by the $100 cost = 50%.
- Your Margin is $50 divided by the $150 price = 33.3%.
Formulas Used
Our calculator uses the standard financial formulas used by accountants and businesses worldwide:
1. Gross Margin %
Formula: ((Price - Cost) / Price) * 100
This shows the percentage of revenue that exceeds the cost of goods sold (COGS).
2. Markup %
Formula: ((Price - Cost) / Cost) * 100
This shows the percentage increase over the cost price.
3. Price (based on Target Margin)
Formula: Cost / (1 - (Margin / 100))
Use this to set prices that guarantee a specific profit margin.
4. Price (based on Target Markup)
Formula: Cost * (1 + (Markup / 100))
Use this for "cost-plus" pricing strategies.
Why Margin is Always Lower than Markup
A common source of confusion is that Margin is always a lower percentage than Markup (unless both are zero). Why? Because Margin is calculated based on the Selling Price, which is a larger number than the Cost (assuming you are making a profit). When you divide the profit by a larger number (Price), you get a smaller percentage.
For example, if you double your cost (100% Markup), your profit is only half of the total sale price (50% Margin). Understanding this relationship is critical for setting prices that cover your overhead expenses and generate a real net profit.
Industry Benchmarks
Profit margins vary dramatically by industry and business model. Grocery and supermarket businesses typically operate on razor-thin margins of 1-3%, relying on high volume to generate profits. Restaurants generally aim for 60-70% food cost margins (30-40% gross margin). Retail clothing stores often target 50% gross margin (known as Keystone pricing, or a 100% markup). Software and SaaS companies can achieve 70-90% gross margins because digital products have minimal per-unit costs. Construction and contracting businesses usually target 15-25% gross margins depending on project complexity. Knowing your industry benchmark helps you set competitive prices while maintaining healthy profitability.
Pro Tips for Pricing Strategy
Use margin rather than markup when communicating profitability to investors or accountants, since margin directly shows what percentage of revenue is profit. When setting prices, always calculate from cost upward using the "Find Selling Price" mode to guarantee your target profitability. Remember that gross margin does not account for overhead costs like rent, salaries, and utilities. Your net margin (after all expenses) is what actually matters for business survival. Consider tiered pricing: higher margins on premium products and lower margins on high-volume staples. Regularly revisit your cost inputs since supplier prices, shipping, and material costs change frequently.