About

Pricing errors stemming from the confusion between "Markup" and "Margin" are among the most common causes of retail insolvency. While both metrics describe the relationship between cost and price, they communicate entirely different values. Markup is the percentage added to the cost, whereas Margin is the percentage of the final selling price that is profit. A 50% markup does not yield a 50% margin; it yields a 33% margin.

This tool is engineered for merchants, dropshippers, and manufacturers using a Cost-Plus pricing strategy. It features a bidirectional calculation engine. Users can start with a cost and a target margin to derive the necessary price, or input cost and price to reverse-engineer the realized markup. The split-screen logic ensures that the distinction between the two metrics remains visible at all times, protecting margins from calculation fallacies.

Formulas

The relationship between Cost (C), Price (P), Markup (Mk), and Margin (Mg) is defined as follows:

To find Price from Margin: P = C1 − Mg

To find Price from Markup: P = C × (1 + Mk)

Where Mg and Mk are expressed as decimals (e.g., 20% = 0.20).

Reference Data

Variable	Markup Logic	Margin Logic	Common Mistake
Basis	Percentage of Cost	Percentage of Price	Confusing the denominator
Formula	ProfitCost	ProfitPrice	Applying Markup % as Margin
Goal	Setting Price above Cost	Retaining Revenue	Underearning
Example	Cost $100 + 50% = $150	Price $150 w/ 50% = $75 Cost	Expecting $50 profit on $100 sale

Frequently Asked Questions

Neither is "better," but Margin is generally safer for financial planning because it represents the portion of sales revenue you actually keep. Markup is a mechanical tool used to set prices during the purchasing phase.

Because the Margin formula divides profit by the (higher) Selling Price, while Markup divides profit by the (lower) Cost. Since the denominator is larger in the Margin formula, the resulting percentage is always smaller.

Keystone pricing is a standard retail method where items are marked up by 100%, effectively doubling the cost. This results in exactly a 50% Gross Margin.

theoretically, only if the Cost of Goods is $0. If you have any cost associated with the item, Margin will always be strictly less than 100%.