Margin vs markup: why your price can be wrong
Adding 30% to your cost does not give you a 30% profit margin. The percentages use different starting points. This difference matters whenever you set prices from a supplier quote or check whether a product can support your business.
One product, two percentages
Suppose an item costs 40 and you sell it for 60. You keep 20 before other expenses. Compared with your 40 cost, that is a 50% markup. Compared with your 60 selling price, it is a 33.33% margin.
| Pricing choice | Selling price | Profit | Margin |
|---|---|---|---|
| 30% markup | 52.00 | 12.00 | 23.08% |
| 30% target margin | 57.15* | 17.15 | 30.01% |
| 50% markup | 60.00 | 20.00 | 33.33% |
*Rounded upward to cents to meet the target.
Work backward from the goal
For a markup, multiply cost by 1 plus the markup rate. For a margin, divide cost by 1 minus the margin rate. A cost of 40 and a target margin of 30% therefore give 40 ÷ 0.70, or 57.142857… before rounding.
Then add the costs you actually pay
If you also pay a 3% fee on the selling price and a fixed 0.30 fee, the same target requires (40 + 0.30) ÷ (1 − 0.30 − 0.03). That is 60.149253…, so the price must be at least 60.15 in this model. Simply adding 3% of the product cost would understate the fee.
Check the wording on a quote
When someone says “we need 30%”, ask 30% of what, and after which costs. The answer changes your price. Use the profit margin calculator to check an existing price and the markup calculator when your pricing rule is explicitly based on cost.
What this leaves out
Neither percentage tells you how many sales you will make, how much cash is tied up in stock or whether monthly overhead is covered. Use a consistent tax basis and check the break-even point before treating a per-product margin as business profit.