Markup vs margin
Adding 20% to the cost does not leave 20% profit in the price. They are two different percentages, and mixing them up makes you earn less than you think.
The two definitions
- Markup: the profit as a percentage of the cost. Price = cost × (1 + markup).
- Margin: the profit as a percentage of the price. Price = cost ÷ (1 − margin).
An example: with a cost of $1,000 and a markup of 25%, the price is $1,250 and the profit is $250, which is 20% of the price. That is a 25% markup and a 20% margin.
If you only add 20% to the cost, the price is $1,200 and the profit $200, which is 16.67% of the price. You wanted 20% and you got 16.67%.
From markup to margin
Margin = markup ÷ (1 + markup).
| Markup | Margin it leaves |
|---|---|
| 10% | 9.09% |
| 15% | 13.04% |
| 20% | 16.67% |
| 25% | 20% |
| 30% | 23.08% |
| 50% | 33.33% |
| 100% | 50% |
From margin to markup
Markup = margin ÷ (1 − margin).
| Margin | Markup that gives it |
|---|---|
| 10% | 11.11% |
| 20% | 25% |
| 25% | 33.33% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100% |
What the calculator uses
The Profit (%) field of the calculators is a markup: it is worked out on the subtotal plus the overhead. If you think in margin, use the second table to find the markup that gives it. The percentages are the ones you type; there is no single right one.