About this tool
Margin is profit as a share of the selling price: (price − cost) ÷ price. Markup is profit as a share of the cost: (price − cost) ÷ cost. They describe the same profit differently, which causes expensive pricing mistakes: adding a 40% markup to a cost of 60 gives a price of 84 and a margin of only 28.6%.
To hit a target margin, divide the cost by (1 − margin). A 40% margin on a cost of 60 needs a price of 60 ÷ 0.6 = 100.
Good to know
- Gross margin only: overheads, taxes and fees are not included.
- Prices should normally exclude VAT for margin calculations.