Blog · Finance metrics and formulas
Markup divides profit by cost; margin divides the same profit by the selling price. This page gives both formulas, works them on five products, converts between them in a table and in Excel, and shows the pricing mistake that turns a 40% margin target into 28.6%.
Markup vs margin comes down to the denominator. Both start from the same profit, price minus cost, but markup divides it by cost and margin divides it by the selling price. A product that costs $60 and sells for $100 earns $40: a 66.7% markup and a 40.0% margin.
Markup is profit as a share of cost; margin is profit as a share of price.
Markup = (Price − Cost) / Cost
Margin = (Price − Cost) / Price
Margin = Markup / (1 + Markup) Markup = Margin / (1 − Margin)
For the same profit, markup is always the larger percentage, because cost is always smaller than price. Margin can never reach 100%; markup has no ceiling.
Two columns on the same cost basis: unit cost and unit price, or line revenue and line cost of goods sold from an invoice-line export. Same basis means the same cost in both calculations. If the margin uses landed cost (purchase price plus freight in and duty), the markup must too, or the two numbers stop converting into each other.
For a company total, use net revenue after discounts, rebates and credit memos, and the cost of goods sold for the same period. That pair gives gross margin, which gross profit margin covers in full.
| Product | Cost (USD) | Price (USD) | Profit (USD) | Markup | Margin |
|---|---|---|---|---|---|
| A | 60.00 | 100.00 | 40.00 | 66.7% | 40.0% |
| B | 45.00 | 60.00 | 15.00 | 33.3% | 25.0% |
| C | 80.00 | 100.00 | 20.00 | 25.0% | 20.0% |
| D | 12.50 | 20.00 | 7.50 | 60.0% | 37.5% |
| E | 150.00 | 175.00 | 25.00 | 16.7% | 14.3% |
Product A: 40 / 60 = 66.7% markup, 40 / 100 = 40.0% margin. Product D: 7.50 / 12.50 = 60.0% markup, 7.50 / 20.00 = 37.5% margin.
The check that proves each row: convert one into the other. Product A's markup of 0.667 / 1.667 = 0.400, its margin. Product E's margin of 0.143 / (1 − 0.143) = 0.167, its markup. If a row does not convert, cost and price are on different bases.
| Target margin | Markup needed | Price on a cost of 100 (USD) |
|---|---|---|
| 20% | 25.0% | 125.00 |
| 25% | 33.3% | 133.33 |
| 30% | 42.9% | 142.86 |
| 40% | 66.7% | 166.67 |
| 50% | 100.0% | 200.00 |
Each markup is margin / (1 − margin): 0.30 / 0.70 = 42.9%. The gap widens as margins rise. At 20% the two differ by five points; at 50% they differ by fifty.
A product costs $60 and the target is a 40% margin. Someone prices it at a 40% markup instead:
| Method | Price (USD) | Profit (USD) | Margin |
|---|---|---|---|
| 40% markup: 60 × 1.40 | 84.00 | 24.00 | 28.6% |
| 40% margin: 60 / (1 − 0.40) | 100.00 | 40.00 | 40.0% |
The markup price earns 24 / 84 = 28.6%, more than eleven points short of target. The shortfall is $16 a unit, 16% of the correct price, and it stays hidden until someone reports the margin. On a quote sheet where every line was priced the same way, it is the margin of the whole order.
With cost in A2 and price in B2:
Markup: =(B2-A2)/A2
Margin: =(B2-A2)/B2
With a target margin in C2, the price that hits it:
=A2/(1-C2)
And the conversions, with a markup in D2 or a margin in E2:
Margin from markup: =D2/(1+D2)
Markup from margin: =E2/(1-E2)
Format the results as percentages; Microsoft Support's guide to calculating percentages covers the Percent Style formatting. For a margin across many lines, divide the summed profit by the summed revenue rather than averaging the line margins.
A company's gross margin is a margin: gross profit over net revenue. On the one-year P&L in the profit margin calculator, revenue of $2,400,000 and cost of goods sold of $1,560,000 leave $840,000 of gross profit. That is a 35.0% gross margin and a 53.8% markup on cost (840,000 / 1,560,000). Both are true; only the first belongs in a financial report.
Income statements are built on sales: the SEC's Regulation S-X, Rule 5-03 starts from net sales, "gross sales less discounts, returns and allowances", and takes the cost of goods sold from it. So finance reports margin. Buyers, distributors and some sales teams quote markup, because they start from what a product cost them. Quote a 53.8% figure as gross margin and you overstate the margin by more than half. Below the gross line, gross margin vs contribution margin vs net margin shows what each further layer of cost does.
A product margin is one row; the margin that matters is what each customer leaves after discounts, rebates and credit memos. Covirage's tools compute margin per invoice line, per product and per customer from your ledger export, net of credit memos and rebates, and reconcile the total to gross profit; the external AI model explains which customers and lines moved it, and never does the arithmetic. See customer profitability, or margin by account for the method. For margin after variable costs, see contribution margin ratio, and for margin after every cost, see net profit margin.
No. A 50% markup on a cost of 100 gives a price of 150 and a margin of 33.3%. A 50% margin needs a price of 200 on the same cost, which is a 100% markup. Markup is always the larger number for the same profit.
Margin is on selling price: profit divided by price. Markup is on cost: profit divided by cost. Finance reports and P&Ls use margin; buyers and some sales teams quote markup, which is why the two get mixed up.
No. Profit can never exceed the selling price, so margin tops out below 100%. Markup has no ceiling: a product costing 10 and selling for 50 has a 400% markup and an 80% margin.
Divide the markup by one plus the markup: margin = markup / (1 + markup). A 25% markup is 0.25 / 1.25 = 20% margin. In the other direction, markup = margin / (1 - margin).