Margin Calculator

Pricing is the Heart of Business

If you are running a business—whether it is a lemonade stand, a dropshipping store, or a multinational corporation—setting the right price is the most important decision you will make. Price too high, and you lose customers. Price too low, and you go bankrupt.

However, many new entrepreneurs make a critical math error when setting prices: Confusing Margin with Markup. These two terms describe the same profit dollars, but they express them as percentages in completely different ways. Getting them mixed up can lead to lower profits than you expected. Our Margin & Markup Calculator above instantly clears up the confusion.

The Difference: Margin vs. Markup

Even experienced business owners sometimes use these terms interchangeably, but they represent two different perspectives on the same transaction.

1. What is Markup? (The "Mark Up")

Markup is a percentage of the Cost. It tells you how much you increased the price above what you paid for the item. This is useful when you are setting prices.

Formula: $$Markup = \frac{Profit}{Cost} \times 100$$

If you buy a shirt for $50 and want to add $25 profit, you calculate 25 divided by 50. That is a 0.50, or a 50% Markup.

2. What is Margin? (The "Slice of the Pie")

Gross Margin (often just called Margin) is a percentage of the Revenue (Total Sales Price). It tells you how much of every dollar you keep as profit. This is useful when you are analyzing sales.

Formula: $$Margin = \frac{Profit}{Revenue} \times 100$$

Using that same shirt: You sold it for $75 ($50 cost + $25 profit). Your profit is $25. 25 divided by 75 is 0.33, or a 33% Margin.

Which One Should You Use?

Different industries prefer different metrics, but generally:

• Use Markup when you are deciding pricing strategy in the early stages. It ensures you cover your costs. (e.g., "We mark up all wholesale goods by 2.5x").
• Use Margin when looking at financial reports (P&L Statements). Investors and accountants care about Margin because it shows the efficiency of the company.

Can Margin be more than 100%?

No. Margin can never exceed 100% because your profit cannot be higher than your total revenue (unless your cost is negative, which is impossible). As your price goes up to infinity, your margin gets closer and closer to 99.99%, but never hits 100%.

Markup, however, can be infinite. Bottled water often has a 4,000% markup. Prescription drugs can have markups of 20,000%.

Conversion Cheat Sheet

Here is a quick reference to see how Markups translate into Margins. Notice how Margin grows much slower than Markup.

Gross Margin vs. Net Margin

It is vital to remember that our calculator computes Gross Margin. This accounts only for the Cost of Goods Sold (COGS)—the direct material and labor to make the item.

It does not include overhead expenses like rent, electricity, marketing, or software subscriptions. Your Net Margin is what is left after all those expenses are paid. A healthy Gross Margin is usually needed (e.g., 50%+) to leave enough room for a decent Net Margin (e.g., 10-20%).