About Margin & Markup
Retail's most expensive vocabulary confusion: a founder prices everything at “40% profit” by adding 40% to cost, reports margins to an investor who hears revenue-based margin, and the books eventually disagree with everyone. The two words are different denominators wearing similar suits.
Two modes: give cost and price to see margin AND markup side by side, or give cost and a target margin to get the correct selling price (with the divide-don't-add math shown). Every result names both numbers so the distinction sticks.
Covering fixed costs is the other half of pricing — the Breakeven Calculator.
The Formulas, Untangled
Same profit, two denominators — plus the pricing inverse:
Margin = (price − cost) ÷ PRICE Markup = (price − cost) ÷ COST Price for target margin = cost ÷ (1 − margin%)
Worked example: cost $60, price $100 → $40 profit = 40% margin = 66.7% markup. Pricing for a 40% margin: $60 ÷ 0.60 = $100 ✓. The wrong way — $60 × 1.40 = $84 — delivers only 28.6% margin: an 11-point silent haircut on every sale.
Margin ↔ Markup Conversion
The pairs every pricing conversation eventually needs:
| Margin | Markup | Price on $60 cost |
|---|---|---|
| 20% | 25% | $75.00 |
| 30% | 42.9% | $85.71 |
| 40% | 66.7% | $100.00 |
| 50% | 100% | $120.00 |
| 60% | 150% | $150.00 |
| 75% | 300% | $240.00 |
Markup always exceeds its margin twin, and the gap explodes upward: a 50% margin means doubling cost, a 75% margin means quadrupling it. “Keystone pricing” (2× cost) is exactly the 50% row.
Which Number When
Margin speaks to the P&L: gross margin is revenue minus cost of goods over REVENUE, so 40% margin means 40 cents of every sales dollar survives to cover overhead and profit. Investors, financial statements, and industry comparisons all speak margin — quoting markup in those rooms overstates your health by the table above's gap.
Markup speaks to the pricing workflow: cost is what you know first, so “cost × 1.67” is an executable shelf rule (that particular multiplier delivering the 40% margin). Healthy targets vary wildly by industry — groceries survive on single-digit margins at volume, software enjoys 80%+, restaurants live between — so the useful comparison is your niche's norm, not a universal number. And remember margin here is GROSS: rent, payroll, and marketing still eat from it before profit.