Markup vs Margin: The Conversion Table, the Discount Trap and the Pricing Formulas
Markup is profit as a percentage of cost. Margin is profit as a percentage of price. A product that costs $60 and sells for $90 earns $30, which is a 50% markup and a 33.3% margin. To convert, margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin). The two numbers describe the same $30, and mixing them up is the most common way small sellers price themselves into a loss.
The two definitions, with one product
Start with a pair of numbers.
| Item | Amount |
|---|---|
| Cost to you | $60.00 |
| Selling price | $90.00 |
| Profit (price minus cost) | $30.00 |
| Markup = profit ÷ cost | $30 ÷ $60 = 50.0% |
| Margin = profit ÷ price | $30 ÷ $90 = 33.3% |
Markup answers: how much did I add on top of what I paid? (The markup calculator computes both from any two of cost, price and profit, and this guide is part of the self-employed, gig and seller math hub.) Margin answers: how much of each dollar a customer hands me is profit? The numerators match, and the denominators differ. Because the price is always larger than the cost when you make a profit, the margin is always smaller than the markup.
Margin can never reach 100%, since the price would have to be many times the cost to approach it. Markup can exceed 100% without any trouble: a $20 item sold for $60 has a 200% markup and a 66.7% margin.
Converting between them
The two conversions follow from the definitions. If markup is m (written as a decimal), then price = cost × (1 + m) and margin = m ÷ (1 + m). If margin is g, then price = cost ÷ (1 − g) and markup = g ÷ (1 − g).
From markup to margin
| Markup | Margin | Price on $60 cost |
|---|---|---|
| 5% | 4.76% | $63.00 |
| 10% | 9.09% | $66.00 |
| 15% | 13.04% | $69.00 |
| 20% | 16.67% | $72.00 |
| 25% | 20.00% | $75.00 |
| 30% | 23.08% | $78.00 |
| 33.33% | 25.00% | $80.00 |
| 40% | 28.57% | $84.00 |
| 50% | 33.33% | $90.00 |
| 60% | 37.50% | $96.00 |
| 75% | 42.86% | $105.00 |
| 100% | 50.00% | $120.00 |
| 150% | 60.00% | $150.00 |
| 200% | 66.67% | $180.00 |
| 300% | 75.00% | $240.00 |
From margin to markup
| Margin | Markup needed | Price multiplier on cost | Price on $60 cost |
|---|---|---|---|
| 5% | 5.26% | 1.0526 | $63.16 |
| 10% | 11.11% | 1.1111 | $66.67 |
| 15% | 17.65% | 1.1765 | $70.59 |
| 20% | 25.00% | 1.2500 | $75.00 |
| 25% | 33.33% | 1.3333 | $80.00 |
| 30% | 42.86% | 1.4286 | $85.71 |
| 35% | 53.85% | 1.5385 | $92.31 |
| 40% | 66.67% | 1.6667 | $100.00 |
| 45% | 81.82% | 1.8182 | $109.09 |
| 50% | 100.00% | 2.0000 | $120.00 |
| 60% | 150.00% | 2.5000 | $150.00 |
| 75% | 300.00% | 4.0000 | $240.00 |
| 80% | 400.00% | 5.0000 | $300.00 |
The multiplier column is the practical shortcut. To hit a margin g from a cost, multiply the cost by 1 ÷ (1 − g). A 40% margin means a multiplier of 1.6667, and a 50% margin means doubling the cost, which is the old retail rule of thumb known as keystone pricing: it is a 100% markup and a 50% margin at the same time.
The pricing trap: using a margin target as a markup
The error that costs real money is to decide "I want a 30% margin" and then add 30% to the cost. Here is what happens to the $60 product:
| Target margin | Price if you add that % to cost | Margin you actually get | Price that delivers the target | Dollars of profit missed per unit |
|---|---|---|---|---|
| 20% | $72.00 | 16.67% | $75.00 | $3.00 |
| 30% | $78.00 | 23.08% | $85.71 | $7.71 |
| 40% | $84.00 | 28.57% | $100.00 | $16.00 |
| 50% | $90.00 | 33.33% | $120.00 | $30.00 |
The higher the target, the bigger the miss. At a 50% margin target, adding 50% to cost leaves $30 of profit on a $90 sale and misses the target by 16.7 points. The fix is the multiplier: $60 × 2 = $120 gives a 50% margin ($60 profit on a $120 sale).
The reverse error is also costly in a different way. Someone told "the industry runs 40% margins" who reads that as a 40% markup is pricing about $16 too low on a $60 cost, and the shelf price stays too low until someone notices that the profit and loss statement shows 28.6%.
Discounts hit profit harder than they look
A discount comes off the price, but the cost does not change. So a discount that looks small takes a large share of the profit.
Take the $60 cost, $90 price product (33.3% margin).
| Discount | New price | Profit per unit | Margin | Markup | Share of profit lost |
|---|---|---|---|---|---|
| 0% | $90.00 | $30.00 | 33.33% | 50.0% | 0% |
| 5% | $85.50 | $25.50 | 29.82% | 42.5% | 15% |
| 10% | $81.00 | $21.00 | 25.93% | 35.0% | 30% |
| 15% | $76.50 | $16.50 | 21.57% | 27.5% | 45% |
| 20% | $72.00 | $12.00 | 16.67% | 20.0% | 60% |
| 25% | $67.50 | $7.50 | 11.11% | 12.5% | 75% |
| 30% | $63.00 | $3.00 | 4.76% | 5.0% | 90% |
A 10% discount costs 30% of the profit, because the discount is 10% of the price ($9) and the profit is only 33.3% of the price ($30). The discount that wipes out profit entirely is the margin itself: 33.33% off.
To find how many more units you need to sell to keep the same total profit, divide the old profit per unit by the new profit per unit, and subtract 1.
| Discount | Extra volume needed to hold total profit |
|---|---|
| 5% | 17.6% |
| 10% | 42.9% |
| 15% | 81.8% |
| 20% | 150% |
A 20% sale needs two and a half times the unit sales to earn the same total profit. This is the number to have in mind before agreeing to a "free shipping and 20% off" promotion.
Fees change the answer: a landed-cost example
Real prices also have to cover fees and the cost of getting goods to you. Here is a seller with assumed inputs.
| Input (assumed) | Amount |
|---|---|
| Unit cost from supplier | $12.40 |
| Freight and duty per unit | $2.10 |
| Landed cost | $14.50 |
| Marketplace fee (percentage of price) | 15.9% (assumed) |
| Fixed fee per order | $0.30 (assumed) |
Profit per unit is the price minus the landed cost minus the fees, and the fees depend on the price. At several price points:
| Selling price | Fees | Profit | Margin | Markup on landed cost |
|---|---|---|---|---|
| $22.00 | $3.80 | $3.70 | 16.8% | 25.5% |
| $24.99 | $4.27 | $6.22 | 24.9% | 42.9% |
| $29.00 | $4.91 | $9.59 | 33.1% | 66.1% |
| $32.50 | $5.47 | $12.53 | 38.6% | 86.4% |
To find the price for a target net margin g with a percentage fee f and a fixed fee k, rearrange: price = (landed cost + k) ÷ (1 − f − g). For a 30% margin: ($14.50 + $0.30) ÷ (1 − 0.159 − 0.30) = $14.80 ÷ 0.541 = $27.36. For a 40% margin: $14.80 ÷ 0.441 = $33.56. If you had only multiplied the landed cost by 1 ÷ (1 − 0.30) = 1.4286 you would have priced at $20.71 and lost money on every sale: at $20.71 the fees alone are $3.59, leaving $2.62 of profit, a 12.6% margin.
The fee percentage here is an input. Use the current figures on your platform's fee page. The Etsy fees calculator and the eBay fees calculator work out those fees for those two platforms.
How much more you must sell to pay for a discount
The earlier table fixes one product. The general rule is simple: a discount of d points off a price with margin m points leaves a profit of (m − d) per dollar of original price instead of m, so the volume needed to hold total profit rises by m ÷ (m − d) − 1. The table gives that increase for a range of starting margins and discounts.
| Starting margin | 5% off | 10% off | 15% off | 20% off | 25% off |
|---|---|---|---|---|---|
| 20% | +33.3% | +100% | +300% | never | never |
| 30% | +20% | +50% | +100% | +200% | +500% |
| 40% | +14.3% | +33.3% | +60% | +100% | +166.7% |
| 50% | +11.1% | +25% | +42.9% | +66.7% | +100% |
| 60% | +9.1% | +20% | +33.3% | +50% | +71.4% |
"Never" means the discount equals or exceeds the margin, so every extra sale loses money and no volume restores the profit. A seller on a 30% margin who runs 20% off has to triple unit sales to break even on profit, while a seller on a 60% margin needs a 50% rise. The table is the reason high-margin products can afford sales that thin-margin products cannot.
Costs that scale with price: commission, returns and shipping
Fees are not the only costs that grow with the selling price. A sales commission is a percentage of the price, a return allowance or discount allowance is a percentage of revenue given back, and free shipping is a fixed cost per order. Each belongs in the price formula: price = (landed cost + fixed fees + shipping) ÷ (1 − fee % − commission % − return % − target margin).
Using the landed-cost seller from above (landed cost $14.50, assumed fee of 15.9% plus $0.30) and a 30% target margin, the required price climbs as costs are added. All of the extra costs are hypothetical.
| Costs included | Price needed for a 30% margin | Margin actually earned at a $29 price |
|---|---|---|
| Landed cost and marketplace fee only | $27.36 | 33.1% |
| Plus a 5% sales commission | $30.14 | 28.1% |
| Plus a 6% returns and discount allowance | $34.34 | 22.1% |
| Plus $4.50 of shipping paid by the seller | $44.78 | 6.5% |
The same $29 price that earned 33.1% against fees alone earns 6.5% once commission, returns and shipping are counted. The price that restores a 30% margin is $44.78, a 63% rise over the fee-only figure, because every percentage-of-price cost shrinks the divisor and the fixed shipping cost is divided by a smaller number. If the market will not pay $44.78, the choices are to lower the cost, charge for shipping, or accept a thinner margin knowingly.
When your cost goes up and the price stays put
A supplier increase works like a discount in reverse: the price you charge is fixed, so the whole increase comes out of profit. On the $60 cost, $90 price product:
| Cost increase | New cost | Profit | Margin | Markup | Price that restores a 33.3% margin | Profit lost if price stays |
|---|---|---|---|---|---|---|
| 0% | $60.00 | $30.00 | 33.3% | 50.0% | $90.00 | 0% |
| 5% | $63.00 | $27.00 | 30.0% | 42.9% | $94.50 | 10% |
| 10% | $66.00 | $24.00 | 26.7% | 36.4% | $99.00 | 20% |
| 15% | $69.00 | $21.00 | 23.3% | 30.4% | $103.50 | 30% |
| 20% | $72.00 | $18.00 | 20.0% | 25.0% | $108.00 | 40% |
Two things follow. First, a 10% cost increase costs 20% of the profit, because the increase ($6) is a fifth of the $30 profit. Second, restoring the same margin means raising the price by the same percentage as the cost, since a fixed margin means a fixed price-to-cost ratio. A markup target behaves the same way: to keep a 50% markup, price rises with cost. What does not restore the old dollar profit is a price rise of the same dollar amount as the cost increase. That would hold profit at $30 but cut the margin to 31.3% on a $96 price when the cost went up by $6.
Sales tax: price with and without
Where a displayed price includes sales tax, part of it is money you pass on to the government. Margin has to be computed on the price before sales tax. Take a hypothetical 13% sales tax: a product shown at $101.70 with that tax included has a pre-tax price of $101.70 ÷ 1.13 = $90.00. Using the tax-inclusive price in the margin formula would give ($101.70 − $60) ÷ $101.70 = 41.0%, which overstates the real 33.3%.
Chains of margins
Margins do not simply add up along a supply chain, because each step takes its margin on its own selling price. A manufacturer produces an item for $10. A wholesaler takes a 30% margin on its selling price, and a retailer takes 45% on the retail price.
| Step | Calculation | Selling price |
|---|---|---|
| Manufacturer's cost | $10.00 | |
| Wholesaler sells at | $10.00 ÷ (1 − 0.30) | $14.29 |
| Retailer sells at | $14.29 ÷ (1 − 0.45) | $25.97 |
| Total markup on the manufacturer's cost | $25.97 ÷ $10.00 − 1 | 159.7% |
The consumer pays 2.6 times the manufacturer's cost, even though no single step took more than a 45% margin. The same multiplication applies when your own costs include a supplier's margin.
Averaging margins across a product mix
A seller with several products cannot find the overall margin by averaging the individual percentages. Revenue weights them.
| Product | Revenue | Cost of goods | Profit | Margin | Markup |
|---|---|---|---|---|---|
| Mugs | $12,000 | $7,200 | $4,800 | 40.0% | 66.7% |
| Prints | $8,000 | $2,400 | $5,600 | 70.0% | 233.3% |
| Shirts | $20,000 | $14,000 | $6,000 | 30.0% | 42.9% |
| All products | $40,000 | $23,600 | $16,400 | 41.0% | 69.5% |
The simple average of the three margins is 46.7%, which is wrong by almost six points because the low-margin shirts make up half of the revenue. The simple average of the three markups is 114.3%, which is wrong by far more, because the prints' 233% markup counts as much as the shirts' 43% in the average but represents a small slice of sales. The correct overall figures are total profit divided by total revenue (margin) or by total cost (markup), which gives 41.0% and 69.5%.
The mix also shows where growth pays. A dollar of extra print revenue adds 70 cents of profit, and a dollar of extra shirt revenue adds 30 cents. Shifting 10% of revenue from shirts to prints (to 4,000 less shirts and 4,000 more prints) lifts total profit by 4,000 × (0.70 − 0.30) = $1,600 and the overall margin from 41.0% to 45.0%.
Pricing time: margin on a billable hour
The same two measures apply to a service priced by the hour, with one extra twist: only part of the paid time is billable.
Suppose an employee costs $30 an hour (wages plus the employer's costs) and the service is billed at $75 an hour. On a billed hour that is a 150% markup and a 60% margin. But if only 60% of the paid hours are billable, the revenue per paid hour is $45, and the margin on the time you actually pay for is (45 − 30) ÷ 45 = 33.3%.
| Billable share of paid hours | Revenue per paid hour | Profit per paid hour | Margin |
|---|---|---|---|
| 40% | $30.00 | $0.00 | 0.0% |
| 50% | $37.50 | $7.50 | 20.0% |
| 60% | $45.00 | $15.00 | 33.3% |
| 70% | $52.50 | $22.50 | 42.9% |
| 80% | $60.00 | $30.00 | 50.0% |
At a 40% billable share the headline 150% markup earns nothing. The break-even share is the cost divided by the price, $30 ÷ $75 = 40%. For anyone pricing their own time, the freelance rate calculator builds in the unbillable hours.
The price floor: where a sale stops earning anything
Every selling price has a floor below which a sale loses money, and fees move it. With the same landed cost of $14.50, the fixed $0.30 and the assumed 15.9% fee, profit is zero where price × (1 − 0.159) = $14.80, which is $17.60. Below that price each sale loses money. Above it, the margin climbs quickly at first and then flattens.
| Selling price | Profit per unit | Margin |
|---|---|---|
| $17.60 | $0.00 | 0.0% |
| $20.00 | $2.02 | 10.1% |
| $22.00 | $3.70 | 16.8% |
| $24.99 | $6.22 | 24.9% |
| $29.00 | $9.59 | 33.1% |
The floor is the number to check before agreeing to any discount or bundle: a 40% promotion on the $29.00 price lands at $17.40, below the floor, so every unit sold at that price loses about $0.17 before any shipping or advertising cost.
One product, three sales channels
The same product earns very different margins depending on where it is sold, because the price and the cost structure both change. Take the $14.50 landed-cost product with a $29.00 retail price and three hypothetical channels: selling directly with payment processing of 2.9% plus $0.30, selling on a marketplace with the assumed 15.9% plus $0.30, and selling wholesale to a retailer at 60% of the retail price with no fees.
| Channel | Price received | Fees | Profit per unit | Margin | Markup on landed cost |
|---|---|---|---|---|---|
| Direct sale | $29.00 | $1.14 | $13.36 | 46.1% | 92.1% |
| Marketplace | $29.00 | $4.91 | $9.59 | 33.1% | 66.1% |
| Wholesale at 60% of retail | $17.40 | $0.00 | $2.90 | 16.7% | 20.0% |
Wholesale earns a quarter of the direct profit per unit, which is why wholesale sellers need volume. Direct sales earn the most per unit but carry the cost of finding customers, which none of these rows includes. A seller choosing between channels should compare contribution per unit and then ask how many units each channel can actually sell.
Buying more units: how cost tiers change the margin
Suppliers often cut the unit cost as the order grows, which moves the margin without touching the price. Using the same landed-cost seller, a $29.00 price, and the assumed 15.9% plus $0.30 marketplace fee ($4.91 a unit):
| Order size | Landed cost per unit | Profit per unit | Margin | Cash tied up | Units to sell to get the cash back |
|---|---|---|---|---|---|
| 100 | $14.50 | $9.59 | 33.1% | $1,450 | 61 |
| 500 | $12.90 | $11.19 | 38.6% | $6,450 | 268 |
| 1,000 | $11.80 | $12.29 | 42.4% | $11,800 | 490 |
The 1,000-unit order lifts the margin by 9.3 points and adds $2.70 of profit per unit. It also puts $11,800 into stock, and the profit only arrives as the units sell. The break-even column is the cost of the order divided by the price less fees ($24.09 a unit), which is the number of sales needed to recover the cash. A seller who sells 40 units a month takes about 12 months to clear the 490-unit break-even on the big order and about a month and a half for the small one. Margin says which order is better per unit; the sell-through rate says whether you can afford it. The break-even calculator turns the contribution per unit into the number of sales needed to cover fixed costs.
Sources
- Definitions and conversions are standard arithmetic; no external data is used. Marketplace fees in the landed-cost example (15.9% plus $0.30) are labelled assumptions.
- The 13% sales tax in the tax example is a hypothetical rate chosen for the arithmetic; use the rate that applies where you sell.