If you want a 30% profit margin, you need a 42.9% markup, not 30%. Mark a product up by 30% and your margin is only 23.1%. Mixing up the two is one of the most common pricing mistakes in small business, and it quietly underprices every sale.<\/p>\n
Below is a margin-to-markup conversion chart, the two formulas behind it, and worked examples so you can price with confidence.<\/p>\n
Markup<\/strong> is profit as a percentage of cost<\/em>. Margin<\/strong> is profit as a percentage of the selling price<\/em>.<\/p>\n Both use the same profit figure; they just divide by different numbers. Because cost is always smaller than price (when you’re making a profit), markup is always the bigger percentage<\/strong>.<\/p>\n Example:<\/strong> you buy an item for $60 and sell it for $100. Profit is $40.<\/p>\n Doubling the cost (a 100% markup) is what retailers call keystone pricing<\/strong>, and it always produces a 50% margin.<\/p>\n Write both as decimals (30% = 0.30):<\/p>\n And to go straight from cost to price:<\/p>\n That second formula is the one most people get wrong. To hit a 40% margin on a $60 item, the price is $60 \u00f7 0.60 = $100<\/strong>, not $60 \u00d7 1.40 = $84. Pricing at $84 gives a margin of only 28.6%.<\/p>\n Suppose your accountant says the business needs a 35% gross margin to cover overheads, and you apply a 35% markup to everything instead. Each $100 of cost becomes a $135 price, and your real margin is $35 \u00f7 $135 = 25.9%. On $500,000 of annual sales, that 9-point gap is roughly $45,000 of profit you thought you’d have<\/strong> but don’t.<\/p>\n The reverse mistake, quoting a margin to a customer or partner when you meant markup, makes your pricing look greedier than it is.<\/p>\n Retail:<\/strong> a shirt costs $18 wholesale and you want a 55% margin. Price = $18 \u00f7 (1 \u2212 0.55) = $18 \u00f7 0.45 = $40<\/strong>. Check: ($40 \u2212 $18) \u00f7 $40 = 55%. The markup is $22 \u00f7 $18 = 122%.<\/p>\n Freelance or services:<\/strong> a subcontractor charges you $1,200 and you need a 25% margin on the job. Price = $1,200 \u00f7 0.75 = $1,600<\/strong>. The markup is 33.3%.<\/p>\n Reverse check:<\/strong> a supplier offers a product at $45 with a suggested retail price of $75. Margin = $30 \u00f7 $75 = 40%<\/strong>; markup = $30 \u00f7 $45 = 66.7%.<\/p>\n With cost in A2 and selling price in B2:<\/p>\n Format the results as percentages.<\/p>\n\n
Margin to Markup Conversion Chart<\/h2>\n
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\n \nDesired margin<\/th>\n Markup needed<\/th>\n<\/tr>\n<\/thead>\n \n 10%<\/td>\n 11.1%<\/td>\n<\/tr>\n \n 15%<\/td>\n 17.6%<\/td>\n<\/tr>\n \n 20%<\/td>\n 25.0%<\/td>\n<\/tr>\n \n 25%<\/td>\n 33.3%<\/td>\n<\/tr>\n \n 30%<\/td>\n 42.9%<\/td>\n<\/tr>\n \n 33.3%<\/td>\n 50.0%<\/td>\n<\/tr>\n \n 35%<\/td>\n 53.8%<\/td>\n<\/tr>\n \n 40%<\/td>\n 66.7%<\/td>\n<\/tr>\n \n 45%<\/td>\n 81.8%<\/td>\n<\/tr>\n \n 50%<\/td>\n 100%<\/td>\n<\/tr>\n \n 60%<\/td>\n 150%<\/td>\n<\/tr>\n \n 70%<\/td>\n 233.3%<\/td>\n<\/tr>\n \n 75%<\/td>\n 300%<\/td>\n<\/tr>\n \n 80%<\/td>\n 400%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Markup to Margin Conversion Chart<\/h2>\n
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\n \nMarkup<\/th>\n Resulting margin<\/th>\n<\/tr>\n<\/thead>\n \n 10%<\/td>\n 9.1%<\/td>\n<\/tr>\n \n 20%<\/td>\n 16.7%<\/td>\n<\/tr>\n \n 25%<\/td>\n 20.0%<\/td>\n<\/tr>\n \n 30%<\/td>\n 23.1%<\/td>\n<\/tr>\n \n 40%<\/td>\n 28.6%<\/td>\n<\/tr>\n \n 50%<\/td>\n 33.3%<\/td>\n<\/tr>\n \n 60%<\/td>\n 37.5%<\/td>\n<\/tr>\n \n 75%<\/td>\n 42.9%<\/td>\n<\/tr>\n \n 100% (“keystone”)<\/td>\n 50.0%<\/td>\n<\/tr>\n \n 150%<\/td>\n 60.0%<\/td>\n<\/tr>\n \n 200%<\/td>\n 66.7%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n The Conversion Formulas<\/h2>\n
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A 30% margin needs 0.30 \u00f7 0.70 = 0.4286, a 42.9% markup<\/strong>.<\/li>\n
A 50% markup gives 0.50 \u00f7 1.50 = 0.333, a 33.3% margin<\/strong>.<\/li>\n<\/ul>\n\n
Why the Difference Matters<\/h2>\n
Worked Examples<\/h2>\n
Calculating It in Excel or Google Sheets<\/h2>\n
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=(B2-A2)\/A2<\/code><\/li>\n=(B2-A2)\/B2<\/code><\/li>\n=A2\/(1-C2)<\/code><\/li>\n<\/ul>\n