Margin vs. markup: what's the difference?
Margin and markup both describe your profit as a percentage, but they compare it with different numbers, which is why they are so easy to mix up.
- Margin is your profit as a share of the selling price. It tells you how much of every sale you keep.
- Markup is your profit as a share of the cost. It tells you how much you add on top of what you paid.
Example: you buy a mug for 60 and sell it for 100 without VAT. Your profit is 40. The margin is 40 ÷ 100 = 40%, and the markup is 40 ÷ 60 = 67%. Same mug, same profit, two different percentages.
The mix-up costs money. If you want a 40% margin and add 40% to your cost, you get a price of 84, and a margin of only 29%.
The formulas
profit = price without VAT − costmargin = profit ÷ price without VATmarkup = profit ÷ costprice for a target margin = cost ÷ (1 − margin)price without VAT = price with VAT ÷ (1 + VAT rate)
Need to add or remove VAT on its own? Use our VAT calculator, which has the rates for every EU country.
Margin to markup table
Use this table to turn a margin into the markup you need, or the other way round.
| Margin | Markup | Multiply cost by |
|---|---|---|
| 20% | 25% | 1.25 |
| 25% | 33% | 1.33 |
| 30% | 43% | 1.43 |
| 35% | 54% | 1.54 |
| 40% | 67% | 1.67 |
| 45% | 82% | 1.82 |
| 50% | 100% | 2 |
| 60% | 150% | 2.5 |
| 70% | 233% | 3.33 |
"Multiply cost by" gives the price without VAT. A 50% margin means doubling your cost, and a 60% margin means multiplying it by 2.5.
Always calculate margin without VAT
The VAT on a sale isn't yours. You collect it for the tax authority. If you sell a product for 125 with 25% VAT, your price is really 100. Calculate your margin on 125, and a 40% margin suddenly looks like 52%. That gap is how shops end up pricing too low without noticing.
What comes out of your margin
The margin in this calculator is your gross margin: price minus the cost of the product. Before you see any real profit, other costs come out of it:
- shipping you pay for and packaging,
- payment and platform fees,
- marketing and ads,
- returns,
- and discounts.
Discounts are the cost shops most often underestimate. A 10% discount on a product with a 40% margin takes a quarter of your profit. Our discount cost calculator shows exactly how many extra sales a discount needs to pay for itself. One way to keep discounts cheaper is to only give them to customers who earn them, for example by winning a short daily puzzle on your website.
Questions and answers
What is the difference between margin and markup?
Both compare your profit with a price, but not the same price. Margin is profit divided by the selling price. Markup is profit divided by the cost. A product that costs 60 and sells for 100 has a profit of 40, a margin of 40% and a markup of 67%.
How do I calculate profit margin?
Subtract the cost from the selling price without VAT, then divide by the selling price without VAT. With a cost of 60 and a price of 100: (100 − 60) ÷ 100 = 40%.
How do I calculate markup?
Subtract the cost from the selling price without VAT, then divide by the cost. With a cost of 60 and a price of 100: (100 − 60) ÷ 60 = 67%.
How do I find the price for a target margin?
Divide the cost by 1 minus the margin. For a 40% margin on a product that costs 60: 60 ÷ (1 − 0.40) = 100, before VAT. Then add VAT to get the price the customer pays.
Should I calculate margin with or without VAT?
Always without VAT. The VAT is not your money: you collect it for the tax authority. If you calculate your margin on a price that includes VAT, it looks much bigger than it is.
What is a good profit margin for a webshop?
It depends on what you sell. Many webshops have a gross margin between 30% and 60%. Remember that shipping, payment fees, marketing and discounts all come out of that margin.