How to calculate profit margin and markup
Use the correct formulas for gross profit, margin, and markup—and avoid confusing the two percentages.
Profit margin and markup describe profit from different starting points. Margin divides profit by selling price. Markup divides profit by cost. That difference matters whenever you set or review prices.
Profit margin formula
First subtract cost from selling price to find gross profit. Then divide gross profit by selling price and multiply by 100.
If an item costs 100 and sells for 150, gross profit is 50. The margin is 50 divided by 150, or 33.33%.
- Gross profit = selling price − cost
- Margin % = gross profit ÷ selling price × 100
Markup formula
Markup measures the same gross profit against cost. Using the same example, 50 divided by the 100 cost produces a 50% markup.
A target margin cannot be achieved by simply adding the same percentage to cost. To achieve a 50% margin on a cost of 100, the selling price must be 200.
- Markup % = gross profit ÷ cost × 100
- Selling price = cost × (1 + markup rate)
Use complete costs
A margin calculation is only as useful as the cost entered. Product acquisition, packaging, payment processing, shipping support, marketplace fees, and direct labor may all affect the true cost of a sale.
Gross margin is not the same as net business profit. Rent, software, salaries, tax, and other operating costs still need to be covered.
This guide provides general educational information and is not legal, accounting, or tax advice. Requirements vary by country, industry, and transaction.