The profit margin formula
Gross profit is revenue minus cost, and the margin expresses that profit as a percentage of revenue:
profit = revenue − cost
margin% = profit ÷ revenue × 100
Because margin is divided by revenue (the larger number), it can never exceed 100%.
Worked example
Sell for $200, cost $120:
Profit: 200 − 120 = $80.
Margin: 80 ÷ 200 × 100 = 40%.
Markup: 80 ÷ 120 × 100 ≈ 66.7%.
Margin vs markup — the key difference
They use the same profit but a different denominator. Margin divides profit by the selling price; markup divides it by the cost. Markup is always the larger number for the same sale. Confusing the two is a classic pricing mistake — a "50% markup" is only a 33% margin.
| Markup | Equivalent margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 100% | 50% |
| 200% | 66.7% |
Tip: set prices from the margin you need to cover overhead and profit, not from a markup rule of thumb. To go the other way — cost plus a target markup — use the Markup Calculator.