Margin to Markup Converter
Example: Target gross margin: 40 %
| Markup to apply to cost | 66.67% |
| Target margin | 40.00% |
Worked example
Say you need a 40% gross margin. The formula is markup = margin divided by (1 minus margin), or 0.40 divided by 0.60, which is 0.667. So you must apply a 66.7% markup to your cost. A $60 item then sells for about $100, and the $40 of profit is indeed 40% of the $100 price, confirming the conversion is right.
Frequently asked questions
Why is markup always higher than margin?
Because markup is measured against the smaller number, cost, while margin is measured against the larger number, price. The same dollar of profit is a bigger percentage of cost than of price, so markup always exceeds the equivalent margin.
What is the exact formula?
Markup equals margin divided by (one minus margin), with both as decimals. A 25% margin needs a 33.3% markup; a 50% margin needs a 100% markup. This tool applies that formula for you.
When should I price by margin versus markup?
Retail and cost-plus businesses often think in markup because they start from cost. Finance and reporting think in margin because it is a share of revenue. Convert whenever your pricing method and your target are expressed differently.
Does a 50% markup equal a 50% margin?
No, and assuming so is a costly mistake. A 50% markup is only a 33.3% margin. If you want a true 50% margin, you must apply a 100% markup, which this converter makes obvious.