Margin vs markup
The same product and the same profit give two different percentages. For a unit cost of 1,800 and a selling price of 2,400:
| Measure | Formula | Result |
|---|---|---|
| Profit | Price − cost | 600 |
| Margin | Profit ÷ price | 25% |
| Markup | Profit ÷ cost | 33.3% |
For a 25% margin, the price is cost ÷ (1 − 0.25) = 2,400. Multiplying cost by 1.25 gives 2,250, which is only a 20% margin.
How discounts affect margin
A discount lowers the price while the cost stays the same, so the whole discount comes out of profit. A 5% discount on the 2,400 product cuts the margin from 25% to about 21%.
To keep your target margin after a discount, set the list price at cost ÷ ((1 − target margin) × (1 − discount)). With a cost of 1,800, a 25% target and a 5% discount, that is 2,526.32.
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Frequently asked questions
How do I calculate profit margin?
Margin = (selling price − cost) ÷ selling price × 100. A cost of 1,800 and a price of 2,400 give a 25% margin.
How do I price for a 30% margin?
Divide the cost by 0.70. A cost of 1,000 gives a price of 1,428.57. Multiplying by 1.30 (1,300) only gives a 23% margin.
What costs should I include?
Materials, labour and a share of overheads; add shipping and packaging if your price includes them. A margin based on incomplete costs is lower in reality.
Should margin be calculated with or without VAT?
Without. Use prices and costs excluding VAT or sales tax, because the tax is not your income.
Last updated: 31 October 2026 · By the Offerneta team