Markup vs margin: how to price your products

Markup and margin are both ways to describe profit, and mixing them up is one of the most common pricing mistakes. A 50% markup is not a 50% margin. This guide explains the difference, shows how to convert between them, and gives the formula for a price that still delivers your margin after marketplace fees.

The difference in one line

• Markup is profit as a share of your cost: (price - cost) / cost.
• Margin is profit as a share of the selling price: (price - cost) / price.

Take an item that costs $12 and sells for $18. The profit is $6. The markup is 6 / 12 = 50%. The margin is 6 / 18 = 33.33%. Same sale, two different percentages.

Converting between them

• Margin = markup / (100% + markup).
• Markup = margin / (100% - margin).

Notice that a margin can never reach 100%, while a markup can be any size.

Which one should you use?

Margin tells you how much of each sale you keep, which is what you spend and save. Markup is convenient when you add a standard percentage to your cost. Pick one and use it everywhere, or you will compare numbers that mean different things.

Pricing for a margin when fees take a percentage

If a marketplace takes a percentage f of the sale price, and you want a margin m on the price, the profit is price x (1 - f) - cost, so:

price = cost / (1 - f - m)

For example, with a cost of $12, fees of 10% and a wanted margin of 30%, the price is 12 / (1 - 0.10 - 0.30) = $20. Check it: the seller keeps $20 x 0.90 = $18, minus the $12 cost is $6, and $6 / $20 is 30%.

Fixed fees, such as a flat amount per order, make the exact price slightly higher, and fees on shipping and tax change it again. That is why the Target Margin Price Calculator solves it with the real fee rules instead of a single percentage.

Do not forget the costs that are not in the product

Postage, packaging, returns and your own time all lower the real margin. Add them to your cost before you choose a price. If you want to know how many sales you need to cover rent, tools and subscriptions, use the Break-Even Calculator, and to move between markup and margin quickly use the Markup & Margin Calculator.

This guide is general information, not financial advice.