What is the difference between margin and markup?

Both describe the same profit on a sale, measured against different numbers. Margin is profit as a share of the selling price; markup is profit as a share of the cost. Buy at $60 and sell at $100: the $40 profit is a 40% margin (40 ÷ 100) and a 66.7% markup (40 ÷ 60).

How do I work out the price for a target margin?

Divide the cost by (1 − the margin). For a 40% margin on a $60 cost: 60 ÷ 0.60 = $100. Adding 40% to the cost instead gives $84, which is only a 28.6% margin.

How do I convert markup to margin?

Margin = markup ÷ (1 + markup). A 50% markup is 0.5 ÷ 1.5 = 33.3% margin; a 100% markup (doubling the cost) is a 50% margin. The other way round, markup = margin ÷ (1 − margin).

Should I include GST or VAT?

No. Use cost and price before GST or VAT. The tax is collected for the tax office and is not your profit, and your Profit and Loss in Xero shows sales and costs without it.

Is gross margin the same as profit?

No. Gross margin is what is left after the direct cost of the item or job. Your overheads (rent, wages, software) come out of that gross profit, so a business needs enough gross margin across all its sales to cover them. The break-even calculator shows how much that is.

Are my figures stored or sent anywhere?

No. The calculation runs in your browser. Nothing you type is saved or sent to our server or anyone else. The only exception is if you ask us to email you the result: then your email address and a short summary of the result are stored, and nothing is sent until you confirm.

How is this different from ReportPilot's weekly email?

This calculator works on one price at a time. ReportPilot reads your Xero figures and works out gross margin for the whole business each month; the Monday email points it out when it moves by 3 percentage points or more, which is often the first sign that costs have risen faster than prices.

Margin and markup calculator: what price hits my margin?

The formulas

Gross profit = price − cost.
Margin = gross profit ÷ price.
Markup = gross profit ÷ cost.
Price for a target margin = cost ÷ (1 − margin).
Price for a markup = cost × (1 + markup).

A worked example

An item costs $60 and sells for $100. (Made-up figures to show the arithmetic.)

	Amount
Gross profit: $100 − $60	$40
Margin: $40 ÷ $100	40%
Markup: $40 ÷ $60	66.7%
Price for a 45% margin: $60 ÷ 0.55	$109.09

If the owner wanted a 40% margin and simply added 40% to the cost, they would charge $84 and get a 28.6% margin: $16 less profit on every sale. Press "Load the worked example" above to see it in the calculator.

Markup to margin at a glance

Markup	Margin
25%	20%
33.3%	25%
50%	33.3%
66.7%	40%
100%	50%
150%	60%

Checking your real margin in Xero

One price tells you the margin on one item. Your business's gross margin is the blend of everything you sold: on the Profit and Loss, divide Gross Profit by Total Trading Income. If it is lower than the margin you price for, look for discounts, waste, supplier price rises you have not passed on, or direct costs coded in the wrong place (cost of goods sold shows what belongs above the gross profit line, and why stock you bought but have not sold yet does not). The guides to gross profit margin in Xero and reading a Profit and Loss walk through it, and the break-even calculator shows the sales that margin needs to cover your overheads. Thinking of raising prices? The price increase calculator shows how many sales you could lose and still come out ahead.

Questions

What is the difference between margin and markup?: Both describe the same profit on a sale, measured against different numbers. Margin is profit as a share of the selling price; markup is profit as a share of the cost. Buy at $60 and sell at $100: the $40 profit is a 40% margin (40 ÷ 100) and a 66.7% markup (40 ÷ 60).
How do I work out the price for a target margin?: Divide the cost by (1 − the margin). For a 40% margin on a $60 cost: 60 ÷ 0.60 = $100. Adding 40% to the cost instead gives $84, which is only a 28.6% margin.
How do I convert markup to margin?: Margin = markup ÷ (1 + markup). A 50% markup is 0.5 ÷ 1.5 = 33.3% margin; a 100% markup (doubling the cost) is a 50% margin. The other way round, markup = margin ÷ (1 − margin).
Should I include GST or VAT?: No. Use cost and price before GST or VAT. The tax is collected for the tax office and is not your profit, and your Profit and Loss in Xero shows sales and costs without it.
Is gross margin the same as profit?: No. Gross margin is what is left after the direct cost of the item or job. Your overheads (rent, wages, software) come out of that gross profit, so a business needs enough gross margin across all its sales to cover them. The break-even calculator shows how much that is.
Are my figures stored or sent anywhere?: No. The calculation runs in your browser. Nothing you type is saved or sent to our server or anyone else. The only exception is if you ask us to email you the result: then your email address and a short summary of the result are stored, and nothing is sent until you confirm.
How is this different from ReportPilot's weekly email?: This calculator works on one price at a time. ReportPilot reads your Xero figures and works out gross margin for the whole business each month; the Monday email points it out when it moves by 3 percentage points or more, which is often the first sign that costs have risen faster than prices.

This calculator gives an estimate from the figures you enter. It is not financial advice. Xero is a trademark of Xero Limited. This tool and ReportPilot are independent and are not made or endorsed by Xero.

Margin and markup calculator

Your margin and markup