Profit margin vs. markup: the difference that changes your price
A worked example of two percentages that answer different questions.
Start with the denominator
Margin tells you how much of your selling price remains after the costs you include. Markup tells you how much you add to those costs. They use the same profit amount, but divide it by different numbers.
A $20 item sold for $30
If the complete cost is $20 and the sale price is $30, profit is $10. Markup is $10 ÷ $20 = 50%. Margin is $10 ÷ $30 = 33.3%. These figures describe the same sale.
Why adding 30% doesn’t create a 30% margin
A $20 cost with 30% markup gives a $26 price. The $6 profit is only 23.1% of revenue. To get a 30% margin with no percentage fees, divide $20 by 0.70. That gives $28.57 before rounding.
Account for fees before choosing a price
When percentage fees apply to the sale price, subtract both the fee rate and your target margin from 1. Divide your fixed per-item costs by that remainder. With $20 of costs, a 3% fee and 30% target margin, the price is $20 ÷ 0.67 = $29.85.
Use the right kind of profit
The calculator measures contribution after the per-item costs you enter. It does not automatically include monthly software, rent, insurance, returns or income tax. A positive contribution margin does not mean your whole business is profitable.
Try it with your own numbers.
The free calculator includes labor, fees, shipping and ad spend.
Open the pricing calculator →Original worked examples by Margin Lab, prepared with AI assistance. Educational estimates; verify your own costs and provider terms.