GUIDE · BUSINESS & PRICING

Profit margin vs markup: choose the right percentage

Calculate margin and markup from cost and selling price, and see why a 25% markup does not create a 25% profit margin.

Updated 2026-10-07 · How we check

Margin divides profit by selling price. Markup divides profit by cost.

Start with cost and revenue

For a single sale, gross profit is selling price minus the cost assigned to that sale. Keep both figures on a consistent tax basis. This simplified gross-profit calculation does not automatically include payroll, rent, financing, delivery or returns.

Choose the denominator

Gross margin percentage = profit ÷ selling price × 100. Markup percentage = profit ÷ cost × 100. Because the denominators differ, the same sale usually has different margin and markup percentages. A zero denominator makes the corresponding percentage undefined.

Set a price from a target

For a desired markup m expressed as a decimal, price = cost × (1 + m). For a desired margin g below 100%, price = cost ÷ (1 − g). Before setting an actual price, identify which costs your definition includes and whether taxes are included in the displayed sale price.

WORK THROUGH AN EXAMPLE

Put the formula into practice

Cost: 80 currency units. Selling price: 100 currency units.

Profit = 100 − 80 = 20. Margin = 20 ÷ 100 × 100 = 20%. Markup = 20 ÷ 80 × 100 = 25%.

This sale has a 20% gross margin and a 25% markup.