Business
Markup vs margin: the pricing mistake that costs small businesses
Markup is profit as a share of cost. Margin is profit as a share of the selling price.
Both use the same profit figure, but they divide it by different numbers. If you set prices using a markup when you meant a margin, every sale earns less than you planned.
Formulas
| Want | Formula |
|---|---|
| Price from a margin | cost ÷ (1 − margin) |
| Price from a markup | cost × (1 + markup) |
| Margin from a markup | markup ÷ (1 + markup) |
| Markup from a margin | margin ÷ (1 − margin) |
Conversion table
Worked example: a product costs $40. A 30% markup gives $52.00, but that's only a 23.1% margin. For a true 30% margin the price must be $57.14.
| Markup | Equals margin |
|---|---|
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 42.9% | 30.0% |
| 50% | 33.3% |
| 66.7% | 40.0% |
| 100% | 50.0% |
💡 Pro Tip: Calculate margins on prices excluding GST. If you're registered for GST, the 10% you collect isn't your revenue.
✨ Key Takeaways
- Margin = profit ÷ price. Markup = profit ÷ cost.
- For a target margin, price = cost ÷ (1 − margin).
- Work ex-GST.
Open the markup and margin calculator →
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