A 50% markup on cost gives you a 33.33% gross margin on the selling price.
To earn a 40% margin you need to mark cost up by 66.67%.
Markup = margin / (100 - margin) x 100. A 25% margin equals a 33.33% markup.
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Markup and margin describe the same profit from two different angles. Markup is profit as a percentage of cost: markup = (price - cost) / cost x 100. Margin is profit as a percentage of selling price: margin = (price - cost) / price x 100. Buy an item for $50 and sell it for $75, and your markup is 50% but your margin is only 33.33%. Same $25 of profit, two different denominators. Mixing them up is one of the most common pricing mistakes in retail and services, and it always errs in the same direction: pricing with the margin number as if it were a markup leaves money on the table.
Because margin uses the bigger denominator, a given margin always requires a larger markup. These pairs come up constantly in retail pricing:
| Markup (on cost) | Margin (on price) |
|---|---|
| 25% | 20% |
| 33.3% | 25% |
| 50% | 33.3% |
| 100% (keystone) | 50% |
The conversion formulas are simple. Margin to markup: markup = margin / (100 - margin) x 100. Markup to margin: margin = markup / (100 + markup) x 100. The converter above runs both directions instantly, so you never have to do the algebra at the register.
Use markup when you are setting prices, because you start from a known cost and work up. Use margin when you are judging financial health, because your P&L, your accountant and every industry benchmark report gross profit as a percentage of revenue, not cost. A few practical rules:
Healthy margins are also what fund growth: the spread between cost and price is the budget you have for rent, payroll and the marketing that brings in the next customer. If you want to see what that marketing budget could return, run your numbers through our SEO ROI calculator. And if you would like an expert read on whether your site is earning the traffic your margins deserve, request a free SEO audit and we will take a look.
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