Margin vs markup: the difference
Margin and markup use the same profit but divide it by different numbers. Margin is profit as a share of the selling price. Markup is profit as a share of the cost. A product that costs 60 and sells for 100 earns a profit of 40, which is a 40% margin (40 ÷ 100) and a 66.67% markup (40 ÷ 60). The two numbers are never interchangeable: pricing at "40% markup" gives a selling price of 84 and only a 28.57% margin.
| Measure | Formula | Cost 60, price 100 |
|---|---|---|
| Gross profit | price − cost | 40 |
| Gross margin | (price − cost) ÷ price | 40% |
| Markup | (price − cost) ÷ cost | 66.67% |
| Price from markup | cost × (1 + markup) | 60 × 1.6667 = 100 |
| Price from margin | cost ÷ (1 − margin) | 60 ÷ 0.60 = 100 |
Contribution margin after selling fees
Marketplaces and payment processors usually take a percentage of the price plus a fixed amount per sale, and many products also carry shipping or packaging costs. Gross margin ignores those, so this calculator shows them separately as contribution: price × (1 − fee %) − product cost − other unit costs − fixed fee. Contribution is what each sale adds toward fixed overhead and profit. It is not net profit, because rent, salaries, software and income tax still have to be paid from it.
How to find a selling price for a target margin
To keep a target contribution margin m after a percentage fee f, the price must satisfy price × (1 − f − m) = product cost + other unit costs + fixed fee, so price = (c + o + k) ÷ (1 − f − m). The fee and the margin together must stay below 100% of the price; otherwise no price works. If you plan to show a list price and then discount it, divide by (1 − discount): list price = price ÷ (1 − d).
Worked example. Product cost 60, shipping and packaging 5, a 3% fee plus 2 per sale, and a 20% target contribution margin: price = 67 ÷ (1 − 0.03 − 0.20) = 67 ÷ 0.77 = 87.01. Check: the fee is 2.61 + 2 = 4.61, so contribution is 87.01 − 4.61 − 65 = 17.40, which is 20% of 87.01. To offer a 10% discount and still land at 87.01, the list price must be 87.01 ÷ 0.90 = 96.68.
FAQ
Is a 50% markup the same as a 50% margin?
No. A 50% markup on a cost of 100 gives a price of 150 and a margin of 33.33%. A 50% margin needs a price of 200, which is a 100% markup. Margin can never reach 100% while the product has a cost; markup has no upper limit.
Should I set prices with margin or markup?
Either works if you are consistent. Margin is easier to compare with fees, discounts and profit targets because they are all expressed as a share of the price. Markup is convenient when you start from cost and apply a rule of thumb.
Do discounts reduce margin more than they look?
Yes. A discount comes straight out of profit while the cost stays the same. In the default example, a 20% discount on a price of 100 cuts the contribution from 30.00 to 10.60 per unit, a drop of almost two thirds. The discount table above shows this for your own numbers.
How do I work out the selling price from cost and margin?
Divide the cost by one minus the margin. For a 30% margin on a cost of 70: 70 ÷ (1 − 0.30) = 100. If you also pay a percentage fee, subtract it too: with a 5% fee the price for a 30% contribution margin is 70 ÷ (1 − 0.30 − 0.05) = 107.69. The Find a price mode does this for you and adds fixed fees and a planned discount.
How do marketplace and payment fees change my margin?
A percentage fee comes off every sale, so it lowers your margin by the same number of points: a 40% gross margin with a 3% fee leaves 37% after fees. A fixed fee per sale hurts cheap items most, because it is a bigger share of a small price. Enter both in the calculator to see your contribution per unit.
Pricing your own time instead of a product? Convert hours worked to decimal hours with the hours between times calculator before multiplying by your rate.
Educational tool. It does not include sales tax, VAT, returns, chargebacks, inventory financing or fixed costs, and it does not know any marketplace's fee schedule; enter the fees that apply to you.