Turn a unit cost and a target markup or gross margin into a suggested price, then compare the two percentages on the same sale.
Markup and margin use different denominators
Markup is profit divided by cost. Gross margin is profit divided by selling price. A 40% markup on a $30 cost is a $42 price, which is only about 28.57% margin. The two percentages are not interchangeable.
Price from markup = cost × (1 + markup) Price from margin = cost ÷ (1 − margin) Unit profit = price − cost
Example
A $30 cost with a 40% markup prices at $42 and a 28.57% margin. A 40% margin on the same cost prices at $50, which is a 66.67% markup.
What this price leaves out
Payment fees, shipping, discounts, returns, ads, and overhead are not in the unit cost. Use one consistent cost basis before treating the result as a shelf price.
Frequently asked questions
Why is a 50% markup not a 50% margin?
A $100 cost plus 50% markup is a $150 price. Profit is $50, so margin is $50 ÷ $150, or 33.33%.
Can the target margin be 100%?
Not when cost is greater than zero. The formula would divide by zero and require an infinite price.
Can markup be over 100%?
Yes. A $100 cost with a 200% markup is a $300 price.
Is this the price I should charge?
It is only the price that hits the entered rate. Demand, competitors, and fees are separate.