What this does
Enter a cost and either the margin you want, the markup you want to apply, or the price you have already set. It returns all three, every time, so there is nothing to convert in your head.
Why this one
Margin and markup are different numbers and are confused constantly, usually by the person setting the price. A 50% markup is a 33.3% margin. Wanting a 40% margin and applying a 40% markup gives you 28.6%, and two fifths of the profit you planned for disappears on every sale. This tool always shows both and prices the mistake in dollars.
The formula
markup = (price - cost) / cost measured against what it cost you
margin = (price - cost) / price measured against what you charged
price for a target margin = cost / (1 - margin)Published so you can check it. A calculator about money that will not show its working is asking to be trusted on the one thing you cannot verify.
Questions
- What is the difference between margin and markup?
- The denominator. Markup is the profit divided by the cost. Margin is the profit divided by the price. The same sale produces two different percentages, and the larger one is always the markup.
- Why can I not have a 100% margin?
- A 100% margin means the cost is zero. As the target margin approaches 100%, the price required goes to infinity. Markup has no such ceiling, which is another reason the two get confused.
- Which should I use when setting a price?
- Margin, because it is the number that relates to your revenue and to everyone else's published figures. Use markup when you are applying a rule to a cost, such as a standard multiple on materials.