The same profit produces two percentages
Margin and markup both start with gross profit per unit: selling price − unit cost. They differ because they divide that profit by different bases. Gross margin = profit ÷ selling price. Markup = profit ÷ cost. Always label the percentage and its denominator; “add 40%” and “earn a 40% margin” are different pricing instructions.
Worked example: cost 60, price 100
Gross profit is 100 − 60 = 40. Margin is 40 ÷ 100 = 40%. Markup is 40 ÷ 60 = 66.6667%, rounded to four decimals. Nothing about the underlying sale changed: the numerator is 40 in both calculations. The percentage changes because margin compares profit with revenue while markup compares profit with cost.
A 40% markup does not create a 40% margin
Starting from cost 60, a 40% markup gives price = 60 × (1 + 0.40) = 84. Profit is 24, and margin is 24 ÷ 84 = 28.5714%. By contrast, a target 40% margin requires price = 60 ÷ (1 − 0.40) = 100. This denominator difference explains why multiplying cost by 1.40 misses a 40% margin target.
Convert between margin and markup
| Starting rate | Conversion using decimal rates |
|---|---|
| Margin m | Markup = m ÷ (1 − m) |
| Markup u | Margin = u ÷ (1 + u) |
For example, margin 0.40 converts to markup 0.40 ÷ 0.60 = 0.666667. Markup 0.40 converts to margin 0.40 ÷ 1.40 = 0.285714. Convert percentages to decimals before using these formulas, then multiply the result by 100 to display a percentage.
Zero, negative and accounting scope
- With positive price and zero cost, gross margin is 100%, while markup is undefined because cost is the zero denominator.
- With positive cost and price below cost, gross profit, margin and markup are negative. A zero selling price makes margin undefined and falls outside this calculator’s supported positive-price scope.
- Negative prices or costs need context such as credits or recoveries and are outside this simple unit-pricing model.
These are gross measures based on the selected unit cost. They are not net profit margin: fixed overhead, financing, tax, returns and other period expenses may still reduce net profit. Use consistent cost definitions when comparing scenarios.
Check a proposal with the Profit Margin and Markup Calculator, then record assumptions and observed outcomes in the Pricing and Break-Even Scenario Workbook.
References: OpenStax: Contribution Margin and Toronto Metropolitan University: Margins versus Markups.