Calculate gross margin, markup, and profit from item cost and selling price.
Share of the selling price that is profit
Using the item cost above, find the selling price that gives the margin you want.
Gross profit = Revenue − Cost
Margin = (Profit ÷ Revenue) × 100
Markup = (Profit ÷ Cost) × 100
Price for a target margin = Cost ÷ (1 − Margin ÷ 100)
Convert: Markup = Margin ÷ (1 − Margin) · Margin = Markup ÷ (1 + Markup) (as decimals)
Did you know?
While margin and markup are calculated from the same numbers, margin can never reach 100% unless the cost is zero, while markup has no upper limit. A product that costs $1 and sells for $21 has a 2,000% markup but only a 95% margin.
Margin analysis has been a fundamental concept of trade and commerce for centuries, dating back to early merchant accounting in Renaissance Italy. Luca Pacioli, a Franciscan friar and collaborator with Leonardo da Vinci, codified the double-entry bookkeeping system used by Venetian merchants in 1494. This systematic approach allowed businesses to precisely track their costs versus revenues and understand their gross and net margins for the first time in structured history.
Gross Margin measures how much out of every dollar of sales a company keeps as gross profit.
A higher margin means a company has more cash to pay operating expenses or distribute to shareholders.
Retailers typically focus more heavily on margin, whereas manufacturers who set wholesale prices often refer to markup.
Margin is your profit as a percentage of the selling price (revenue). Markup is your profit as a percentage of your internal cost. For example, if you buy something for $10 and sell it for $15, your profit is $5. The margin is 33.3% ($5 / $15), but the markup is 50% ($5 / $10).
A 'good' margin varies wildly by industry. Grocery stores often operate on ultra-thin net margins of 1–3% but make up for it in high volume. In contrast, software companies might have gross margins of 80% or more due to zero physical manufacturing costs.
Divide the cost by one minus the margin as a decimal. To earn a 40% margin on an item that costs $60, charge $60 ÷ (1 − 0.40) = $100. A common mistake is to add 40% to the cost ($84), which only gives a 28.6% margin.
Broadly, there are only two ways to improve margins: increase your selling price without losing sales volume, or decrease your Cost of Goods Sold (COGS) through better supplier negotiation or efficiency.
This calculates Gross Margin, as it only factors in the direct cost of the good being sold. Net margin would also require subtracting your operating expenses, taxes, interest, and overhead.
Margin is profit as a percentage of selling price: (Revenue - Cost) / Revenue. Markup is profit as a percentage of cost: (Revenue - Cost) / Cost. A product costing $60 sold for $100 has a 40% margin but a 66.7% markup. Use margin for financial reporting and markup for pricing decisions.