A 25% markup does not leave a 25% margin, but a 20% one. With a cost of 100 and a price of 125, the profit of 25 is a quarter of the cost and a fifth of the price. That is why markup is figured on the cost and margin on the selling price.
The margin you want decides the markup you use. If you want to keep 25% of the price, the markup you need is one third, 33.3…%. To repeat the calculations with other numbers, use the percentage calculator.
| Measure | Base | Calculation | Result |
|---|---|---|---|
| Markup | Cost, 100 | 25 ÷ 100 | 25% |
| Margin | Price, 125 | 25 ÷ 125 | 20% |
The profit is the same in both rows. The only thing that changes is the whole it is compared with: the cost for markup and the price for margin.
How to convert markup to margin and back
Call k the markup and m the margin, both as fractions. The price is the cost times 1 + k, and the profit is k times the cost. Dividing one by the other gives the margin: m = k/(1 + k). To go the other way, k = m/(1 − m).
The second formula has a direct reading. If the margin is m, the cost is 1 − m of the price, and markup compares the profit with that smaller part. That is why, as long as the profit is positive, the markup is always larger than the margin.
| Markup k | Margin m | Markup in % | Margin in % |
|---|---|---|---|
| 1/4 | 1/5 | 25% | 20% |
| 1/3 | 1/4 | 33.3…% | 25% |
| 1/2 | 1/3 | 50% | 33.3…% |
| 3/5 | 3/8 | 60% | 37.5% |
| 1 | 1/2 | 100% | 50% |
Each row reads both ways, and the table shows that the gap between the two measures grows as the markup rises. With a 100% markup the price is double the cost and half the price is profit, hence the 50% margin. That is the same calculation you get from the definitions in the source below, with 50 and 100.
Example: setting the price for a 40% margin
Worked example: cost 48 and a 40% margin
An item costs 48 and you want the profit to be 40% of the selling price. What price do you sell it at?
- Write the margin as a fraction. 40% = 2/5 of the price.
- Find what part of the price is the cost. 1 − 2/5 = 3/5.
- Divide the cost by that part. 48 ÷ 3/5 = 48 × 5/3 = 80.
- Find the profit. 80 − 48 = 32.
Result: price 80 and profit 32.
Check: 32 ÷ 80 = 2/5 = 40% margin, and 32 ÷ 48 = 2/3, a markup of 66.6...%.
The same item with a 40% markup would cost 48 × 7/5 = 67.20, well below 80. The difference of 12.80 is what you lose by figuring the margin on the wrong base.
What markup you need for a 25% margin
With a cost of 100 and a target margin of 25%, the cost is 3/4 of the price. The price comes from 100 ÷ 3/4 = 400/3, which is 133.33 rounded to cents, and the profit is 33.33. The markup is then one third of the cost.
A third has no terminating decimal, so 33.3…% is written with an ellipsis or left as a fraction. Rounding the markup to 33% before calculating the price changes the real margin, which drops to 24.8%. To turn a fraction into a percentage without misrepresenting the repeating digits, use the fraction to percent conversion.
Names change from one place to another
In everyday talk you also hear “margin on cost,” “margin on sales,” “gross margin” or “gross profit margin,” and they do not always mean the same thing. Before applying a number someone gives you, ask what the base is: if it is the cost, it is a markup; if it is the selling price, it is a margin. The formulas above convert one into the other without losing anything.
This page is arithmetic with three exact numbers and leaves out taxes, shipping and fees. To take a tax out of a final price, see how to remove tax from a price. If the price goes through chained discounts, successive discounts explains why the percentages do not add, and unit price compares offers with a different ratio.
Practice with three cases
- Cost 60 and a markup of 1/2. Find the price and the margin.
- Cost 75 and a margin of 1/5. Find the price and the markup.
- Price 120 and a margin of 1/4. Find the cost and the markup.
Show the answers
- Price 60 × 3/2 = 90, profit 30, margin 30/90 = 1/3.
- Price 75 ÷ 4/5 = 93.75, profit 18.75, markup 18.75/75 = 1/4.
- Cost 120 × 3/4 = 90, profit 30, markup 30/90 = 1/3.
Sources
- Wikipedia, Markup (business): markup as a percentage over the cost, and profit margin defined as (sale price − cost) / sale price, so the selling price is the base (consulted October 17, 2026).