Markup vs. Gross Profit (Margin) Calculator

Formulas & Notes

Definitions

\(\pi = P - C\) (profit per unit). Markup on cost \(m_u=\dfrac{\pi}{C}\). Gross margin on price \(m_g=\dfrac{\pi}{P}\).

Bridge Equations

\(\displaystyle m_g=\frac{m_u}{1+m_u}\quad\text{and}\quad m_u=\frac{m_g}{1-m_g}\).

Solve-For

\(\displaystyle P=C(1+m_u)\) or \(\displaystyle P=\frac{C}{1-m_g}\). Cost from price: \(\displaystyle C=\frac{P}{1+m_u}=P(1-m_g)\).

Tax

Sales tax/VAT is typically applied after price and does not change markup or gross margin; tax outputs are for display.

What Is Markup? How to Calculate It (and Avoid Common Mistakes)

Markup expresses how much you increase cost to set a selling price. If C is your unit cost and P is your selling price, then profit per unit is \(\pi = P - C\). Markup on cost is \(\displaystyle m_u = \frac{\pi}{C} = \frac{P - C}{C}\). For example, a cost of 100 and a selling price of 125 gives a markup of \(\frac{25}{100} = 0.25 = 25\%\). In contrast, gross margin (gross profit % on price) is \(\displaystyle m_g = \frac{\pi}{P}\). The two are related by the bridge equations: \(\displaystyle m_g = \frac{m_u}{1 + m_u}\) and \(\displaystyle m_u = \frac{m_g}{1 - m_g}\).

Core Pricing Formulas

Price from cost and markup: \(\displaystyle P = C(1 + m_u)\).
Price from cost and margin: \(\displaystyle P = \frac{C}{1 - m_g}\).
Cost from price and markup: \(\displaystyle C = \frac{P}{1 + m_u}\).
Cost from price and margin: \(\displaystyle C = P(1 - m_g)\).

Best Practices for Using Markup

• Start with the right cost basis. Use landed cost where relevant: product + freight + duties + packaging + variable handling.
• Convert markup ↔ margin correctly. A 25% markup is only a 20% margin. If you target margins in reporting, set price from margin, not markup.
• Separate discounts from pricing logic. If you run a discount \(d\) on price, post-discount margin is \(m_g'=\dfrac{P(1-d)-C}{P(1-d)}\).
• Mind MAP and competitive ceilings. Use the compare tab to test scenarios that respect those limits.
• Round prices intentionally. Round after computing price, then re-check implied margin.
• Exclude taxes from margin math. VAT/GST/sales tax is typically added at checkout and does not change markup or margin.
• Track cost drift. Recompute markup/margin whenever cost changes.
• Account for returns and allowances. Realized margin may be lower than ticket calculation.

Worked Example

Suppose C = 80 and you want a 30% margin. Price \(P = \dfrac{80}{1 - 0.30} = 114.2857...\). Profit \(\pi = 34.2857...\). The implied markup is \(m_u = \dfrac{0.30}{1 - 0.30} = 0.4286 = 42.86\%\). With a 10% promotional discount, new price = \(114.2857 \times 0.9 = 102.8571\), new margin \(=\dfrac{102.8571 - 80}{102.8571}\approx 22.0\%\).

When to Use Markup vs. Margin

Markup is intuitive for buyers and costing teams; margin aligns with P&L and finance. Use markup for rapid quoting from cost, and margin when communicating targets, forecasting profits, or benchmarking SKUs.