Optimize your pricing strategy. Calculate Profit Margins, set the correct Markup, and determine the ideal Selling Price for your products or services.
While often used interchangeably, Margin and Markup are two very different accounting terms. Confusing them can lead to pricing errors that hurt your bottom line.
Margin is the percentage of the selling price that is profit. If you sell a product for $100 and it cost you $70 to make, your profit is $30, and your margin is 30%.
Formula: (Price - Cost) / Price * 100
Markup is the percentage added to the cost to reach the selling price. Using the same example ($100 price, $70 cost), your profit is $30, but your markup is 42.9%.
Formula: (Price - Cost) / Cost * 100
Use Margin when analyzing overall business profitability. You can never have a margin of 100% or more (unless your cost is 0).
Use Markup when setting individual product prices. You can have markups of 100%, 200%, or more.
For Retailers & Entrepreneurs.
Ensure your prices cover your costs. If you want a 20% margin, you can't just add 20% to your cost (that's markup!). Use this tool to find the exact price needed to hit your revenue goals.
Maximize your revenue.
No. Markup will always be a higher percentage number than Margin for the same transaction, because Markup divides by the smaller Cost number, while Margin divides by the larger Price number.
It varies by industry. Retail often aims for 50% markup (Keystone pricing), resulting in a 33% margin. Software companies may have margins upwards of 80%.