The short answer
- Markup = profit ÷ cost. Margin = profit ÷ selling price. Same profit, two bases: a scarf that costs $20 and sells for $50 has a 150% markup and a 60% margin.
- Converting: margin = markup ÷ (1 + markup); markup = margin ÷ (1 − margin). A 100% markup (doubling the cost) is a 50% margin.
- Margin is the handier number day to day, because card and marketplace fees, discounts and waste are also percentages of the price: you can subtract them directly.
- An average margin comes from totals (total profit ÷ total sales), not from averaging percentages.
- For context, US retailers kept a gross margin of 31.1% of sales in 2022 (a 45.1% markup), and clothing stores 50.6% (about a 102% markup), according to the Census Bureau.
Same profit, two percentages
Both numbers start from the same dollar figure: gross profit = selling price − cost (excluding sales tax or VAT). They just divide it by different things.
| Formula | The question it answers | |
|---|---|---|
| Markup | Profit ÷ cost | How much did I add on top of what I paid? |
| Margin | Profit ÷ price | Of what the customer pays, how much do I keep? |
| Multiplier | Price ÷ cost | What do I multiply my cost by? |
Markup
FormulaProfit ÷ cost
The question it answersHow much did I add on top of what I paid?
Margin
FormulaProfit ÷ price
The question it answersOf what the customer pays, how much do I keep?
Multiplier
FormulaPrice ÷ cost
The question it answersWhat do I multiply my cost by?
Margin can never reach 100%: that would mean the product cost nothing. Markup has no ceiling. An item bought for $5 and sold for $20 has a 300% markup and a 75% margin.
Our guide on how to calculate profit margin covers gross, operating and net margin, sales tax and VAT, and break-even revenue. This page focuses on the markup-versus-margin question itself, and on how each number behaves in a real shop.
Markup to margin conversion chart
Two formulas do all the work:
- Margin = markup ÷ (1 + markup)
- Markup = margin ÷ (1 − margin)
| Target margin | Markup needed | Price multiplier |
|---|---|---|
| 20% | 25% | 1.25 × cost |
| 30% | 42.9% | 1.43 × cost |
| 40% | 66.7% | 1.67 × cost |
| 50% | 100% | 2 × cost |
| 60% | 150% | 2.5 × cost |
20%
Markup needed25%
Price multiplier1.25 × cost
30%
Markup needed42.9%
Price multiplier1.43 × cost
40%
Markup needed66.7%
Price multiplier1.67 × cost
50%
Markup needed100%
Price multiplier2 × cost
60%
Markup needed150%
Price multiplier2.5 × cost
A quick sense check: doubling the cost, which retailers call keystone pricing, always gives a 50% margin. Multiply by less than 2 and your margin is under 50%; by more, it’s over.
To set a price from a target margin: price = cost ÷ (1 − margin). For a 40% margin on a $30 cost: $30 ÷ 0.60 = $50.
Example 1: a gift shop
Dana runs a gift shop in Denver. She buys a wool scarf for $20 and prices it at $50 before sales tax.
- Profit: $50 − $20 = $30.
- Markup: $30 ÷ $20 = 150%.
- Margin: $30 ÷ $50 = 60%.
- Multiplier: $50 ÷ $20 = 2.5.
If a supplier says “there’s 150% in this line” and Dana hears “I keep 150%”, she has the base wrong. What she keeps is 60% of each full-price sale, before rent, wages and the January clearance.
Sales tax doesn’t change any of this: it’s added at the till and passed on to the state, so it’s not part of her price.
Example 2: a market stall, with waste
On a market stall, some stock never sells: soft fruit, end-of-day leftovers. That loss is shrinkage, and it comes straight out of margin.
Tom sells avocados at a Saturday market in Leeds. He’s below the £90,000 VAT registration threshold, so there’s no VAT in his prices. He buys a box of 48 for £18 and sells them at £1 each.
| All 48 sold | 6 too soft to sell (42 sold) | |
|---|---|---|
| Sales | £48 | £42 |
| Cost of the box | £18 | £18 |
| Profit | £30 | £24 |
| Margin | 62.5% | 57.1% |
| Markup (on the box cost) | 166.7% | 133.3% |
Sales
All 48 sold£48
6 too soft to sell (42 sold)£42
Cost of the box
All 48 sold£18
6 too soft to sell (42 sold)£18
Profit
All 48 sold£30
6 too soft to sell (42 sold)£24
Margin
All 48 sold62.5%
6 too soft to sell (42 sold)57.1%
Markup (on the box cost)
All 48 sold166.7%
6 too soft to sell (42 sold)133.3%
Losing 6 avocados out of 48, one in eight, costs him 5.4 points of margin and a fifth of his profit on the box. To hold a 62.5% margin with that waste, the 42 avocados would have to bring in £48 in total, about £1.14 each. In practice he might sell 3 for £3.50 instead of £3 (£1.17 each). The habit worth building: record real waste for a few weeks and price it in, rather than pricing as if every item sells.
Example 3: an online reseller, with fees
Jordan resells phone cases on an online marketplace. Each case costs $4 and sells for $15. In this example the marketplace takes 15% of the sale price, and packaging costs $0.75.
- Gross profit: $15 − $4 = $11, a 73.3% margin.
- Marketplace fee: 15% × $15 = $2.25, or 15 points of the price.
- Packaging: $0.75, or 5 points of the price.
- Profit after fees: $11 − $2.25 − $0.75 = $8, a 53.3% margin.
This is where margin earns its place: 73.3% − 15% − 5% = 53.3%. Anything expressed as a share of the selling price subtracts straight off the margin. With markup, the same step needs a full recalculation: a 275% markup becomes 200% after fees, with no obvious link to the 15% fee.
Check your platform’s real terms: many charge a percentage plus a fixed amount per order, and the fixed part weighs more the cheaper the item.
Discounts: how many more sales do you need?
A discount is a cut in price, so it comes straight off the margin. On an item with a 40% margin, a 10% discount leaves 30% of the original price as profit. To earn the same dollars of profit, you need more sales:
Extra sales needed = discount ÷ (margin − discount)
| Your margin | 10% off | 20% off |
|---|---|---|
| 30% | +50% sales | +200% sales |
| 40% | +33.3% sales | +100% sales |
| 50% | +25% sales | +66.7% sales |
30%
10% off+50% sales
20% off+200% sales
40%
10% off+33.3% sales
20% off+100% sales
50%
10% off+25% sales
20% off+66.7% sales
Read it this way: at a 40% margin, a 20% sale means doubling your unit sales just to stand still. The formula ignores selling fees and any long-term customers the sale brings in, but it shows why a badly sized promotion can empty the till.
Average margin across a whole shop
A shop sells many products at different margins. Averaging the percentages misleads; divide the totals instead.
| Product line | Monthly sales | Cost | Profit | Margin |
|---|---|---|---|---|
| Scarves | $3,000 | $1,200 | $1,800 | 60% |
| Candles | $5,000 | $3,000 | $2,000 | 40% |
| Cards and wrap | $2,000 | $1,400 | $600 | 30% |
| Total | $10,000 | $5,600 | $4,400 | 44% |
Scarves
Monthly sales$3,000
Cost$1,200
Profit$1,800
Margin60%
Candles
Monthly sales$5,000
Cost$3,000
Profit$2,000
Margin40%
Cards and wrap
Monthly sales$2,000
Cost$1,400
Profit$600
Margin30%
Total
Monthly sales$10,000
Cost$5,600
Profit$4,400
Margin44%
The simple average of the three percentages is 43.3%. The true average margin is 44%: $4,400 ÷ $10,000. The gap grows when a low-margin line makes up much of your sales. It’s also why steering customers towards higher-margin lines lifts overall margin without touching a single price.
Benchmarks: US retail gross margins by store type
The Census Bureau’s Annual Retail Trade Survey reports gross margin as a percentage of sales, which is margin in the sense used here. Converted into markup, the 2022 figures look like this:
| Kind of business (2022) | Gross margin | Equivalent markup | Price multiplier |
|---|---|---|---|
| All retail | 31.1% | 45.1% | 1.45 |
| Grocery stores | 28.0% | 38.9% | 1.39 |
| Warehouse clubs and supercenters | 24.3% | 32.1% | 1.32 |
| Clothing stores | 50.6% | 102.4% | 2.02 |
| Furniture and home furnishings | 51.0% | 104.1% | 2.04 |
| Department stores | 42.0% | 72.4% | 1.72 |
| Online and mail-order retailers | 39.6% | 65.6% | 1.66 |
All retail
Gross margin31.1%
Equivalent markup45.1%
Price multiplier1.45
Grocery stores
Gross margin28.0%
Equivalent markup38.9%
Price multiplier1.39
Warehouse clubs and supercenters
Gross margin24.3%
Equivalent markup32.1%
Price multiplier1.32
Clothing stores
Gross margin50.6%
Equivalent markup102.4%
Price multiplier2.02
Furniture and home furnishings
Gross margin51.0%
Equivalent markup104.1%
Price multiplier2.04
Department stores
Gross margin42.0%
Equivalent markup72.4%
Price multiplier1.72
Online and mail-order retailers
Gross margin39.6%
Equivalent markup65.6%
Price multiplier1.66
These are averages across firms of every size and include markdowns and shrinkage. Use them as a rough guide, not a target. Dana’s 60% margin at full price will end up lower over a year once sales and breakage are counted.
Mistakes to avoid
- You’ve said which one: markup (on cost) or margin (on price)
- Price and cost are both before sales tax or VAT
- Price comes from cost ÷ (1 − margin), not cost × (1 + margin)
- Waste, unsold stock and breakage are counted
- Card, marketplace and packaging costs are deducted
- Your average comes from totals, not an average of percentages
The most common slip is verbal. “I put 50% on everything” usually means a 50% markup, which is only a 33.3% margin. Someone who hears “50%” and assumes margin will overestimate the profit by half. With suppliers, partners or a lender, always say which base you’re using.
Tracking margins product by product
The maths only helps if your costs are current. In Binome360, each product in your “Shop” assistant has a cost and a selling price, and stock movements are logged in one sentence. Your assistant prepares the entry; you confirm.
6 avocados too soft, take them out of stock
Ready in your “Shop” assistant: 6 Avocado out, reason: waste. Stock after this: 42. Save it?
The Shop module keeps your products, stock movements and margins.
Try Binome360 for freeTo try your own numbers, the free profit margin calculator shows markup and margin side by side. For the stock side, see our guide to inventory management for a small business.
Frequently asked questions
Is a 50% markup the same as a 50% margin?
No. A 50% markup gives a 33.3% margin: an item costing $10 sells for $15, and the $5 profit is 50% of the cost but a third of the price. A 50% margin needs a 100% markup.
How do I convert markup to margin?
Divide the markup by one plus the markup. A 60% markup: 0.60 ÷ 1.60 = 37.5% margin. To go the other way, divide the margin by one minus the margin: 40% ÷ 0.60 = 66.7% markup.
Should I price using markup or margin?
Either works if you label it. Markup is quick at the stockroom shelf, because you apply it to the cost on the supplier invoice. Margin is better for reading your accounts, comparing products and working out the effect of fees and discounts.
What is a good markup for retail?
It depends on the trade. In 2022, US retailers averaged a 31.1% gross margin (a 45.1% markup), grocery stores 28.0% and clothing stores 50.6%, per the Census Bureau. The right figure is the one that covers your costs and pays you.
Why is margin always lower than markup?
Because the selling price is bigger than the cost (unless you sell at a loss), and margin divides the same profit by the bigger number.
In short
Markup divides profit by cost; margin divides it by price. Say which one you mean, set prices with cost ÷ (1 − margin), and use margin to see what fees, discounts and waste really take. First step: work out last month’s true average margin from your totals, then compare it with the margin on your price tags to see what markdowns and waste cost you.
Sources
- AccountingTools (Steven Bragg), “The difference between margin and markup”: accountingtools.com.
- US Census Bureau, Annual Retail Trade Survey: 2022 (benchmarked), “Estimated Annual Gross Margin as a Percentage of Sales of U.S. Retail Firms by Kind of Business: 1993–2022”: census.gov.
- GOV.UK, “VAT registration: when to register” (£90,000 threshold): gov.uk/vat-registration/when-to-register.
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