Markup Calculator: Markup vs Margin Explained with Pricing Examples

• Tahir Abbas
• October 28, 2026

Last updated: October 2026

Key takeaways

• Markup = (price − cost) ÷ cost. Margin = (price − cost) ÷ price.
• Margin is always smaller than markup for the same price, because the price is bigger than the cost.
• Convert with two formulas: margin = markup ÷ (1 + markup) and markup = margin ÷ (1 − margin).
• The most common pricing mistake is adding a margin percentage onto cost as if it were markup, which leaves you underpriced.
• For service and contractor jobs, your cost must include labor and your price must still cover overhead.

What are the markup and margin formulas?

These are the standard formulas, and they match what Sage publishes in its markup guide. The calculation uses three numbers: cost (what it costs you), price (what the customer pays) and profit (price minus cost).

The “margin” here is gross margin, calculated before overhead. The U.S. Small Business Administration describes the same idea as contribution margin: (sale price per unit − variable cost per unit) ÷ sale price per unit, in its startup costs guide, where it also says that finding your break-even point helps you price your products more smartly.

What is the difference between markup and margin?

Both describe the same dollars of profit. They differ only in the base you divide by. Markup divides by cost, so it answers “how much did I add on top of what I paid?” Margin divides by price, so it answers “how much of each sales dollar do I keep before overhead?”

Two published examples show the gap. Sage’s guide shows an item that sells for 100 and costs 60: markup 66.67%, margin 40%. Shopify’s markup vs margin article uses an $80 sale on a $50 cost, which is a 60% markup but a 37.5% margin ($30 ÷ $50 = 60%; $30 ÷ $80 = 37.5%). Shopify also notes that a 100% markup equals a 50% margin.

Use markup when you are building a price from a known cost (quoting, wholesale-to-retail). Use margin when you are judging profitability or comparing against financial statements, which are usually expressed as a share of revenue.

Markup to margin conversion table

Each row is computed from margin = markup ÷ (1 + markup) and checked against the reverse formula. The multiplier is what you multiply cost by to get the price.

And the other direction, if you start from a margin target:

The rows for multipliers 1.25, 1.5, 2, 2.5 and 4 match the conversion table in the Sage guide (25% / 20%, 50% / 33.33%, 100% / 50%, 150% / 60%, 300% / 75%).

Example 1: pricing a product

You sell a candle that costs you $24 to make and ship to your shelf.

• 50% markup: $24 × 1.50 = $36.00. Profit is $36 − $24 = $12. Margin is $12 ÷ $36 = 33.33%.
• 50% margin instead: $24 ÷ (1 − 0.50) = $48.00. Profit is $24, and markup is $24 ÷ $24 = 100%.

Same candle, same cost, and a $12 difference in price. Saying “I want 50%” is not enough; you have to say 50% of what.

Example 2: hourly service work

A cleaner’s loaded labor cost is $30 an hour. That is an assumed figure for this example, covering wages and employer payroll costs. A job takes 20 hours.

• Target 40% margin: $30 ÷ (1 − 0.40) = $30 ÷ 0.60 = $50 per hour. Revenue is 20 × $50 = $1,000, cost is 20 × $30 = $600, profit is $400, and $400 ÷ $1,000 = 40%.
• Add 40% markup by mistake: $30 × 1.40 = $42 per hour. Revenue is $840, profit is $240, and margin is $240 ÷ $840 = 28.57%.

The mix-up costs $1,000 − $840 = $160 on one job. Remember that gross margin is before overhead such as insurance, vehicle costs and admin time. If you price only against labor, the rate also has to cover those. Our service business hourly rate calculator starts from the other end: your overhead and target income.

Example 3: a contractor job

A contractor estimates direct costs for a deck project: materials $6,200, crew labor $5,800 and a subcontractor $1,000. Direct cost is $6,200 + $5,800 + $1,000 = $13,000.

Assume (for this example only) that overhead runs about 10% of revenue and the owner wants a 10% net profit. That requires a gross margin of 10% + 10% = 20%.

• Correct price: $13,000 ÷ (1 − 0.20) = $16,250. That is a 25% markup ($3,250 ÷ $13,000 = 25%). Overhead is 10% of $16,250 = $1,625, leaving net profit of $3,250 − $1,625 = $1,625, which is 10% of revenue.
• Price with a 20% markup: $13,000 × 1.20 = $15,600. Gross profit is $2,600, so gross margin is $2,600 ÷ $15,600 = 16.67%. Overhead at 10% is $1,560, leaving net profit of $2,600 − $1,560 = $1,040, which is 6.67% of revenue.

The “20% markup” quote earns $1,625 − $1,040 = $585 less on the same job. Say in your estimate whether a percentage is on cost or on price. The contractor bid calculator on our site works with markup, margin and overhead together.

What are the most common markup mistakes?

1. Treating margin as markup. Multiplying cost by 1.30 gives a 23.08% margin, not 30%. Use the divide-by-(1 − margin) formula when you want a margin.
2. Discounting from the marked-up price. A $100 item with a 50% markup is priced at $150. A 20% discount brings it to $120, so profit is $20 and margin is $20 ÷ $120 = 16.67%. The discount took away more than half the profit ($50 down to $20).
3. Using an incomplete cost. Leaving out shipping, packaging, labor or subcontractors makes your markup look healthier than it is.
4. Ignoring overhead. A gross margin of 20% is not 20% profit if overhead takes 10% of revenue. See Example 3.
5. Not saying which one you mean. When a quote, a supplier or a spreadsheet says “20% profit,” check whether it is on cost or on price.
6. Copying a competitor’s markup. Their cost base differs from yours. Your markup has to come from your own costs and goals.

Try the markup calculator

Prefer a spreadsheet? Download the free Markup vs Margin Excel template, which includes the conversion table.

More tools for service businesses are on our free tools page.

Frequently asked questions

How do you calculate markup?

Subtract your cost from your selling price, divide by your cost, then multiply by 100. For example, an item that costs $50 and sells for $80 has a markup of ($80 − $50) ÷ $50 = 60%.

How do you calculate margin?

Subtract your cost from your selling price, divide by your selling price, then multiply by 100. The same $50 item sold for $80 has a margin of $30 ÷ $80 = 37.5%.

Is a 50% markup the same as a 50% margin?

No. A 50% markup is a 33.33% margin. A 50% margin requires a 100% markup, which means selling at twice your cost.

How do I convert markup to margin?

Divide the markup by 1 plus the markup. A 25% markup gives 0.25 ÷ 1.25 = 20% margin. To go back, divide the margin by 1 minus the margin: 0.20 ÷ 0.80 = 25%.

What is a good markup percentage?

It depends on your industry, costs and overhead, so there is no single right answer. Work backward from your overhead and target profit, as in the contractor example above, rather than copying a number from another business.

Should I price using markup or margin?

Either works if you stay consistent and know which one you are using. Many businesses quote with a markup or multiplier because it is quick, then track results as a margin because financial statements are based on revenue.