Understand markup vs margin
Two views of the same profit. Quoted the wrong way, they may cost you a lot
When to use this
Building price lists, quoting tenders, setting distributor pricing, or training a sales team to understand what their discount actually costs.
Inputs explained
What each field expects
- Cost price / Unit priceEnter your landed cost, not the raw invoice price. Use the toggle for a total (whole batch) or a single unit cost — the tool derives the other from quantity.
- Pricing methodChoose whether your percentage is markup (on cost) or margin (on selling price). Suppliers quote you a cost, so you usually add a markup; buyers, retail partners, and your P&L all talk in margin.
- QuantityScales total profit only. Unit price and margin stay the same.
What the output tells you
How to read each number
- Selling priceThe price you would quote to the customer.
- Profit per unitCash generated by each unit sold.
- Actual marginProfit as a percentage of selling price.
- Actual markupProfit as a percentage of cost.
Formulas
Markup
Selling price = Cost × (1 + markup%)Profit is added on top of cost.
Margin
Selling price = Cost ÷ (1 − margin%)Profit is a share of selling price.
Markup vs Margin curve
As markup rises, margin rises slowerX: markup % · Y: actual margin %. The dashed diagonal would be “markup = margin”; the curve sits below it.
Your value: 30% markup is 23.08% margin.
Worked example — 50% markup ≠ 50% margin
- Cost: $10
- Apply 50% markup → Selling price = $15
- Profit per unit = $5
- Actual margin = $5 ÷ $15 = 33.3%
Quoting “50% margin” but applying 50% markup quietly under-prices by 17 points.
Common mistakes
- Saying “30% margin” but applying a 30% markup.
- Mixing markup and margin conventions across SKUs in one price list.
- Marking up a cost that already includes a freight buffer.
- Confusing wholesale, retail, and distributor channels.
Decision rule
Margin is the number that matters for pricing — profit as a share of the price you actually charge, the figure your buyers and P&L speak in. Markup is only how you get there from cost, and a markup % never equals the same margin %. Pick one convention per channel and stick to it.