Markup and margin

The same profit, two denominators

Say you buy something for 100 and sell it for 150. You've made 50. Divide that 50 by the 100 it cost and you get a 50% markup. Divide the same 50 by the 150 it sold for and you get a 33.3% margin. Both are correct: they answer different questions about the same 50 of profit.

Markup asks how much you added on top of what you paid. Margin asks what share of the money coming in you keep. The price is always the larger denominator, so the margin is always the smaller percentage, and the gap widens as the figures grow.

Going from a margin to a price is a division

To price from a margin, divide the cost by what's left. This is where the usual mistake happens. Say you want to price a cost of 70 at a 30% margin. Divide: 70 ÷ 0.70 = 100. Multiplying by 1.30 instead gives 91, and the margin on 91 is 23%, not 30%.

The margin is a share of a number you don't have yet. You can't take 30% of the price before you know the price, so the sum has to run the other way: the cost is the 70% you do know, and dividing by it gives the whole. It's the same mistake as taking VAT back out of a total by subtracting a percentage when the total already includes it.

Why a margin cannot reach 100%

A 100% margin means the thing cost you nothing. The entire price would be profit. Enter 100 or more and the calculator says so instead of printing a figure, because no price turns a real cost into no cost. A markup has no such ceiling. It's measured against the cost, not the price, so 500% is a normal figure to enter.

If a supplier or a marketplace quotes you a figure above 100, I'd treat it as a markup, whatever they call it.

Selling below cost

Enter a price under the cost in the calculator and the profit, the markup and the margin all go negative. That's deliberate. Clearing old stock, pricing a first project low to win a reference, or absorbing a bad estimate are all real decisions. I'd rather the calculator show what each one costs than refuse to work it out.