Markup is your profit as a share of the cost; margin is your profit as a share of the price. A product that costs $5.00 and sells for $7.50 has a $2.50 profit, which is a 50% markup and a 33% margin: same product, same money, two different percentages. Neither is wrong, but margin is the better one to price with, because it's the share of every sale you keep, it's what buyers and accountants talk in, and it can never be over 100%. The expensive mistake is mixing them up: adding a 30% markup when you meant a 30% margin leaves you with 23%. Below are the formulas, a conversion table, four real products worked both ways, and a free calculator.
The short version
- Markup = (price − cost) ÷ cost. Margin = (price − cost) ÷ price.
- Price for a margin = cost ÷ (1 − margin). Price for a markup = cost × (1 + markup).
- Margin = markup ÷ (1 + markup). Markup = margin ÷ (1 − margin).
- A 50% markup is a 33% margin; a 100% markup (doubling the cost) is a 50% margin.
- Price on margin, from a cost you trust, and read the markup off only when someone asks for it.
- TaroStack reports each product's margin on its real cost. More below.
The two formulas, side by side
| Markup | Margin | |
|---|---|---|
| Profit as a share of | Cost | Price |
| Formula | (price − cost) ÷ cost | (price − cost) ÷ price |
| Cost $5.00, price $7.50 | $2.50 ÷ $5.00 = 50% | $2.50 ÷ $7.50 = 33% |
| Can it pass 100%? | Yes, often | Never |
| Who talks in it | Some retailers, "keystone" pricing | Buyers, distributors, accountants, your profit and loss |
Markup always looks bigger, which is part of why it's popular. That's also the danger.
Converting one into the other
| Markup | Is a margin of | Price for $1.00 of cost |
|---|---|---|
| 25% | 20.0% | $1.25 |
| 30% | 23.1% | $1.30 |
| 42.9% | 30.0% | $1.43 |
| 50% | 33.3% | $1.50 |
| 66.7% | 40.0% | $1.67 |
| 75% | 42.9% | $1.75 |
| 100% | 50.0% | $2.00 |
| 150% | 60.0% | $2.50 |
| 200% | 66.7% | $3.00 |
Two rows are worth remembering. A 100% markup, doubling the cost, is a 50% margin: that's keystone, how gift shops commonly price. And a 30% margin needs a 42.9% markup, not 30%.
The mistake, with numbers
A loaf of taro sweet bread at Windward Roots, the made-up taro business I use in these examples, costs $4.91 to make, counting ingredients, labor and overhead, as worked through in how to price baked goods for wholesale. The owner wants a 30% margin on wholesale.
Right: $4.91 ÷ (1 − 0.30) = $7.01 → margin 30%
Wrong: $4.91 × (1 + 0.30) = $6.38 → margin 23%
The wrong way is 63 cents a loaf short. On 24 loaves a week that's $15 a week, about $790 a year, from one product, without anyone noticing, because "we add 30%" sounds exactly like "we make 30%".
Four products, both ways
| Product | Cost | Price | Markup | Margin |
|---|---|---|---|---|
| Taro sweet bread, wholesale loaf | $4.91 | $7.25 | 47.7% | 32.3% |
| Taro chips, 5 oz, direct to a store | $2.10 | $4.54 | 116.2% | 53.7% |
| Whipped body butter, 4 oz, wholesale | $5.16 | $10.50 | 103.5% | 50.9% |
| Coffee, 12 oz bag, wholesale | $4.22 | $9.00 | 113.3% | 53.1% |
The body butter and the coffee both "double the cost", near enough, and land at about 51 to 53% margin. The bread's 47.7% markup sounds healthy and is a 32.3% margin, because bakery goods carry more labor and sell for less. The costs come from the handmade wholesale article and roast loss and cost per bag.
Which is better to use?
Margin, for three reasons. It's the share of each sale you keep, so it adds up the way your profit and loss does: a 30% margin on $10,000 of sales is $3,000. It's what the people you sell to use: a store "keeping 40%" means a 40% margin on its shelf price, and a distributor's cut is a margin too. And it can't mislead you past 100%, while a 200% markup sounds like a fortune and is a 67% margin.
Markup has one honest use: it's quicker to apply at a till ("cost times 2"). If you use it, know the margin it gives.
Get the calculator
Download the markup and margin calculator. It has the conversion table, the markup that gives the margin you want, and your products with markup, margin and the prices a 30% margin and a 30% markup would give. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Markup =(price - cost) / cost
Margin =(price - cost) / price
Price for a margin =cost / (1 - margin)
Where this stops working
Both formulas are only as good as the cost under them. The $4.91 loaf was $4.91 in September; butter went up in October, a new baker is slower at shaping, and the batch that tore three loaves spread its cost over 21. The price list still says $7.25 and the spreadsheet still says 32%, and the real margin is something nobody has worked out since. With forty products, recalculating every cost every month is the job that doesn't happen, so prices drift behind costs until the year-end numbers come in lower than anyone expected.
How TaroStack does it
TaroStack keeps the number under both formulas true, so the margin you see is the margin you're making.
The cost is real, every batch. Ingredients come in at the price you paid, with freight and other landed costs spread across the delivery, and stock is costed in FIFO layers, or moving average if you prefer, so the butter bought at the new price costs the new price once the old butter is gone. Every batch you record is costed from the lots it used, divided by the units that came out good, and shown against what the recipe says it should cost. The torn loaves, the heavier scoop and the dearer butter all land in the cost, the day they happen.
The margin is reported, not calculated by hand. Margins are shown per product, on what you sold and what it actually cost, so the bread's real margin this month is a screen, not a spreadsheet project. A price-creep report per supplier shows who's been nudging prices up, and recipe truth, from your own batch history, shows whether a recipe yields what it claims and which ingredient's quantity is off. So when the margin drops, you can see why: price, yield or the recipe.
And the moment to raise a price is something you see. Because margins are reported on actual cost, a product sliding below the margin you want shows up in the month it happens, not at year end. Recipes contain other recipes, so a dearer butter flows through the buttercream into every product that uses it, without anyone opening a sheet.
| The question | On a spreadsheet | In TaroStack |
|---|---|---|
| What does this loaf cost today? | Whatever it cost when the sheet was built | Its last batch's actual cost |
| What margin am I making? | Price minus a stale cost | Reported per product on actual cost |
| Why did it drop? | Guesswork | Price creep, yield and recipe truth, side by side |
Stock value and lots are on every plan, from $49 a month; recipes, batch costs and margins on actual cost are on Standard at $99. The first 30 days are free, with no credit card, and your recipes import from a spreadsheet. If you'd like a hand setting up, ask, and we'll do it with you.