Profit Margin Calculator
Margin and markup describe the same profit but divide it by different numbers, and confusing them is one of the most expensive mistakes in small business pricing.
Formula
Margin = (price − cost) ÷ price × 100 · Markup = (price − cost) ÷ cost × 100
- Margin divides by the price, markup by the cost
- Margin can never reach 100%; markup has no ceiling
Cost £60, price £100: margin 40%, markup 66.7%
Margin and Markup Are Not the Same
Margin = (Selling price − Cost) ÷ Selling price × 100
Markup = (Selling price − Cost) ÷ Cost × 100
An item costing £60 and selling for £100 carries a 40% margin but a 66.7% markup. Same £40 of profit, two very different percentages.
The difference is the denominator: margin divides by the selling price, markup by the cost.
The Costly Confusion
Adding a 40% markup when you meant a 40% margin underprices the product. On £60 of cost, a 40% markup gives a £84 selling price and a margin of only 28.6% — well short of the 40% intended.
Suppliers and trade bodies often quote markup while accountants work in margin, so confirm which one a figure refers to before building a price list on it.
Pricing to a Target Margin
To hit a margin you must divide rather than multiply:
Selling price = Cost ÷ (1 − target margin)
For a 40% margin on £60 of cost: 60 ÷ 0.60 = £100.
Quick Reference
| Markup on cost | Equivalent margin | Price on £60 cost |
|---|---|---|
| 20% | 16.7% | £72.00 |
| 33.3% | 25% | £80.00 |
| 50% | 33.3% | £90.00 |
| 66.7% | 40% | £100.00 |
| 100% | 50% | £120.00 |
| 150% | 60% | £150.00 |
Frequently Asked Questions
- What is the difference between margin and markup?
- Both measure the same profit, but margin expresses it as a share of the selling price and markup as a share of the cost. A 40 per cent margin is a 66.7 per cent markup.
- How do I price for a target margin?
- Divide your cost by one minus the margin as a decimal. For a 40 per cent margin, divide the cost by 0.6.
- What is a good profit margin?
- It varies hugely by sector: grocery retail runs on low single digits while software can exceed 80 per cent. Compare against your own industry rather than a general figure.
- Should VAT be included?
- No. Work margins on the net figures. VAT is collected on behalf of HMRC and is not part of your revenue or profit.