Same profit, different base
An item that costs 60 and sells for 100 makes a profit of 40. Margin and markup describe that 40 as a percentage of different things:
- Margin is profit as a percentage of the price: 40 ÷ 100 = 40%.
- Markup is profit as a percentage of the cost: 40 ÷ 60 = 66.7%.
Markup is always the larger number. Confusing the two is a common way to underprice: adding a 40% markup to a cost of 60 gives 84, a margin of only 28.6%.
Converting
- Markup = margin ÷ (1 − margin). A 40% margin is a 66.7% markup.
- Margin = markup ÷ (1 + markup). A 50% markup is a 33.3% margin.
Price for a target margin
Price = cost ÷ (1 − margin). For a 40% margin on a cost of 60: 60 ÷ 0.6 = 100.
Break-even
With fixed costs of 6,000 a month, a price of 25 and a variable cost of 10 per unit, each sale contributes 15, so you need 6,000 ÷ 15 = 400 units a month to break even.
Calculators
The Profit Margin and Markup Calculator works either way, the Break-Even Calculator finds the units and revenue to cover costs, and the Discount Calculator shows what a sale price does.