Markup formula
Markup = Profit ÷ Cost × 100
If an item or service costs $500 and sells for $750, the profit is $250. Markup is $250 ÷ $500 = 50%.
Profit margin formula
Profit margin = Profit ÷ Selling price × 100
Using the same $500 cost and $750 selling price, margin is $250 ÷ $750 = 33.33%.
Why 50% markup is not a 50% margin
Markup uses the $500 cost as its denominator. Margin uses the $750 selling price. Because the bases differ, the percentages cannot be treated as interchangeable.
Calculate a selling price from a target margin
When you know your cost and target margin, a useful formula is:
Selling price = Cost ÷ (1 − target margin)
For a $500 cost and a 30% target margin, the calculation is $500 ÷ 0.70 = $714.29. The resulting profit is $214.29, which is 30% of the selling price.
Freelance and service pricing
For freelancers, “cost” may need careful definition. Direct contractor costs, software, materials, and other delivery expenses can be part of a project cost, while your desired compensation, overhead, taxes, and unpaid business time may need separate consideration. Do not assume a margin calculation by itself captures every business cost.
Common mistakes
- Calling markup and margin the same percentage.
- Calculating markup from selling price instead of cost.
- Calculating margin from cost instead of selling price.
- Ignoring overhead or other costs when deciding whether a price is sustainable.
- Using a target margin above 100%, which is not meaningful in this formula.
Quick reference
Profit = Selling price − Cost
Markup = Profit ÷ Cost
Margin = Profit ÷ Selling price
Use the calculator
Enter your cost and selling price to calculate profit, markup, and margin. You can also enter a target margin to estimate the required selling price.
Open the Profit Margin & Markup Calculator →