Margin vs markup
Both start from the same profit per item, selling price − cost, but divide it by different things:
- Margin = profit ÷ selling price. It tells you what share of each sale you keep.
- Markup = profit ÷ cost. It tells you how much you added on top of what you paid.
An item bought for $12 and sold for $20 makes $8: a 40% margin but a 66.7% markup. Confusing the two is the most common pricing mistake: adding a 40% markup to a $12 cost gives $16.80, which is only a 28.6% margin.
Pricing from a target margin
To reach a margin m, divide the cost by (1 − m): for a 40% margin on a $12 item, $12 ÷ 0.6 = $20. The conversion between the two is markup = margin ÷ (1 − margin).
Always calculate before tax
Sales tax or VAT isn't yours: you collect it and pass it on. Work out margins on prices excluding tax, then add the tax to get the shelf price.
Gross margin isn't profit
This calculator gives the gross margin on an item. Card fees, delivery, rent and your own time still come out of it. In Aswath Damodaran's January 2026 data for US-listed companies, grocery retailers have a 26.3% gross margin but a 1.3% net margin.
Read the full guide: how to calculate profit margin.
Frequently asked questions
What's a good profit margin?
It depends on the trade. Compare with businesses like yours, and remember that a high gross margin can still hide a loss once fees and fixed costs are paid.
How do I convert markup to margin?
Margin = markup ÷ (1 + markup). A 50% markup is a 33.3% margin; a 100% markup is a 50% margin.
Should shipping be in the cost?
Yes, if you pay it to get the item in stock: the cost is everything you paid to have it ready to sell.