Work out your gross profit margin and markup from your cost and selling price, or find the price you need to charge to hit a target margin.
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Margin vs markup
They’re often confused, and mixing them up leads to under-pricing.
- Margin = profit ÷ selling price × 100
- Markup = profit ÷ cost × 100
A product that costs £40 and sells for £65 makes £25 profit: a 38.5% margin but a 62.5% markup.
Worked examples
Pricing for a target margin
To make a 40% margin on a £40 cost, the price is £40 ÷ (1 − 0.40) = £66.67. Adding 40% to the cost (£56) would only give a 28.6% margin.
Remember VAT and fees
Calculate margin on the price excluding VAT. If you sell at £78 including 20% VAT, the net price is £65. Card fees, marketplace commission and shipping should be counted as costs too.
Margin to markup conversion
| Margin | Markup needed |
|---|---|
| 20% | 25% |
| 25% | 33.3% |
| 33.3% | 50% |
| 40% | 66.7% |
| 50% | 100% |
Frequently asked questions
What is a good profit margin?
It depends on the industry. Retail gross margins are often 25% to 50%, while software and services can be much higher.
How do I calculate margin from markup?
Margin = markup ÷ (1 + markup). A 50% markup is 0.5 ÷ 1.5 = 33.3% margin.
Is this gross or net margin?
Gross margin: selling price minus the direct cost of the product. Net margin also takes off overheads such as rent, wages and marketing.
Should I include VAT?
No. Use prices excluding VAT, because VAT is passed on to HMRC.
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