Calculator of Alexandria

Profit margin and markup calculator

Convert between cost, selling price, gross margin and markup, and see why a 50% markup is only a 33% margin.

I know the cost and
Selling price
Gross margin
Markup
Profit per item

Formula

m=P−CP,k=P−CCm = \frac{P - C}{P}, \quad k = \frac{P - C}{C}
How it's derived

The formula

margin=P−CP\text{margin} = \frac{P - C}{P} markup=P−CC\text{markup} = \frac{P - C}{C}

PP is the selling price, CC the cost, and P−CP - C the profit on each item.

Where it comes from

Margin and markup describe the same profit, measured against different bases. Margin compares profit to the selling price: of every dollar of sales, how much is profit? Markup compares profit to cost: how much did you add on top of what you paid?

Since the price is always bigger than the cost (if you’re making a profit), the margin is always the smaller number. They convert into each other directly:

margin=markup1+markupmarkup=margin1−margin\text{margin} = \frac{\text{markup}}{1 + \text{markup}} \qquad \text{markup} = \frac{\text{margin}}{1 - \text{margin}}

To set a price for a target margin, rearrange the margin formula for PP:

P=C1−marginP = \frac{C}{1 - \text{margin}}

Worked example

You buy an item for $40 and sell it for $64. The profit is $24:

margin=2464=37.5%markup=2440=60%\text{margin} = \frac{24}{64} = 37.5\% \qquad \text{markup} = \frac{24}{40} = 60\%

Watch out for

  • Mixing them up is expensive. If you want a 40% margin but add 40% to cost, you get a 28.6% margin.
  • Gross vs net. These are gross figures. They don’t include rent, wages, shipping or taxes, which come out of the gross profit.

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