Your AI Copilot for Small Business Growth

Transform your small business with intelligent automation and AI-driven insights.

AskSMB.io helps small and medium businesses accelerate growth through:

• AI-powered business insights and recommendations

• Automated workflow optimization

• Personalized growth strategies

• Real-time business intelligence

• Integration with your existing tools

Get started today and join thousands of SMBs using AI to scale their operations.

JavaScript Required: For the full interactive experience, please enable JavaScript in your browser.

Markup vs Margin Calculator – Pricing Explained | AskSMB - Free Business Calculator | ASK SMB
Pricing

Markup vs Margin Calculator – Pricing Explained | AskSMB

Free Markup vs Margin Calculator. Instantly see the difference between markup and margin and avoid pricing mistakes.

Cost to produce or acquire the product

Price you sell the product for

Profit Amount

$0

Markup Percentage

0%

Margin Percentage

0%

💡 Key Difference:
Markup is based on cost price (cost)
Margin is based on selling price (price)

Markup vs Margin Explained (With Examples)

What is markup?

Markup is the amount you add to your cost price to determine your selling price, expressed as a percentage of the cost. It answers the question: "How much am I increasing the price above what I paid?" The formula is: Markup % = (Profit ÷ Cost) × 100. For example, if you buy a product for $60 and sell it for $100, your profit is $40. Your markup is ($40 ÷ $60) × 100 = 66.67%. Markup is intuitive for pricing because you start with what you know (cost) and add a percentage to reach your selling price. Retailers often think in markup: "I'll take a 50% markup on this item."

What is margin?

Margin (also called profit margin or gross margin) is profit expressed as a percentage of the selling price. It answers: "What percentage of my selling price is profit?" The formula is: Margin % = (Profit ÷ Selling Price) × 100. Using the same example—$60 cost, $100 selling price, $40 profit—your margin is ($40 ÷ $100) × 100 = 40%. Margin is better for financial analysis because it shows how much of each dollar of revenue you keep as profit. Investors and analysts prefer margin because it's standardized and comparable across companies. When someone says "we have 40% margins," they mean 40% of revenue is profit.

Why markup and margin are NOT the same

This is one of the most common and costly mistakes in business. Markup and margin use the same profit amount but divide by different numbers, resulting in different percentages. Here's why:

  • Markup divides profit by cost (the smaller number), so the percentage is higher. Example: $40 profit ÷ $60 cost = 66.67%.
  • Margin divides profit by selling price (the larger number), so the percentage is lower. Example: $40 profit ÷ $100 selling price = 40%.
  • The same $40 profit produces two different percentages: 66.67% markup vs. 40% margin. If you confuse these, you'll underprice your products and lose money.
  • A common mistake: A business owner wants a "50% profit margin" but applies a 50% markup instead. If cost is $100, a 50% markup gives a $150 selling price and only a 33.33% margin—far from the 50% target!

Common pricing mistakes SMBs make

  • Confusing markup and margin: This is the #1 pricing error. Business owners hear "we need 40% margins" but apply a 40% markup, resulting in only 28.57% margin. Always clarify which metric you're targeting.
  • Using the wrong formula: Some calculate margin as (Profit ÷ Cost) instead of (Profit ÷ Selling Price). This gives you markup, not margin. Double-check your formulas.
  • Inconsistent application: Mixing markup and margin across products or time periods makes performance tracking impossible. Pick one primary metric and use it consistently.
  • Not accounting for all costs: Calculating markup or margin based on product cost alone while ignoring shipping, labor, or overhead. Always use total cost.
  • Copying competitors blindly: If a competitor mentions "50% markup," you need to know whether they mean markup or margin before matching it.
  • Failing to test: Calculate your actual margin after setting prices. Verify the math before going to market.

When to use markup vs margin

Use the right metric for the right purpose:

  • Use markup for pricing: When setting prices, markup is easier. "My cost is $50, I want a 60% markup, so I'll charge $80." It's straightforward mental math and works well in retail environments.
  • Use margin for financial analysis: When evaluating profitability, comparing products, or reporting to stakeholders, use margin. It's the standard for financial statements and industry benchmarks.
  • Use margin for targets: Set profitability goals in margin terms because it's tied to revenue. "We need 35% gross margin to be profitable" is clearer than markup.
  • Use markup for quick calculations: In the field or store, markup is faster. You can quickly add a percentage to cost without needing to work backward from selling price.
  • Track both: Sophisticated businesses use markup for day-to-day pricing but monitor margin for financial health. Many POS and accounting systems show both.

Example Scenario

Inputs:

  • Cost price: $60
  • Selling price: $100

Results:

  • Profit: $40
  • Markup: 66.67%
  • Margin: 40%

Why these percentages differ:

Both markup and margin measure the same $40 profit, but they express it differently. The 66.67% markup tells you that you're adding 66.67% to your $60 cost ($60 + $40 = $100). The 40% margin tells you that profit represents 40% of your $100 selling price. Markup is always higher than margin because it's calculated on a smaller base (cost) rather than the larger base (selling price). If you confuse these and apply a 66.67% margin, you'd need to charge $166.67—far higher than the $100 you're actually charging. Understanding this difference prevents catastrophic pricing mistakes.

Frequently Asked Questions

Markup and margin are both ways to express profit, but they use different base numbers. Markup is profit as a percentage of cost price—it answers 'how much am I adding to my cost?' For example, if you buy for $60 and sell for $100, your $40 profit is a 66.67% markup (40 ÷ 60). Margin is profit as a percentage of selling price—it answers 'what percentage of my selling price is profit?' That same $40 profit is a 40% margin (40 ÷ 100). Markup is always higher than margin for the same transaction because the denominator (cost) is smaller than selling price.

Related Tools

💡 Quick Tips

  • •All calculations happen in your browser - your data is private
  • •Results update in real-time as you type
  • •Export to PDF or share via link
  • •No sign-up required

Need More?

Get personalized advice from real SMB experts

Contact an ExpertChat with AskSMB Agent