Markup vs Margin
Markup is a percentage of your cost added on top. Margin is the share of the final price that is profit. The same percentage gives a lower price as markup than as margin, so pricing with markup when you meant margin leaves money behind.
The difference in dollars
Say a candle costs $7.94 to make. A 30% markup adds 30% of the cost: $2.38, for a price of $10.32. A 30% margin means 30% of the price is profit, so the price is $7.94 / 0.70 = $11.34.
At $10.32 your profit is $2.38, which is only 23% of the price. The gap grows as the percentage grows: a 100% markup (cost x 2) is a 50% margin.
Why margin is easier to plan with
Margin answers the question you actually care about: of every dollar a customer pays, how much does the business keep? It also works directly with marketplace fees, which are a percentage of the price, not of your cost.
How to switch from markup to margin
- Work out the full cost per unit, including your time and fixed costs.
- Divide the cost by (1 - margin). For 30%, divide by 0.70.
- Round to a price that suits your market.
- If you sell through a marketplace, let the calculator add the fee into the same step.
Questions
Is a 30% markup the same as a 30% margin?
No. On a $7.94 cost, a 30% markup gives $10.32 and a 30% margin gives $11.34. Margin is the bigger number for the same percentage.
How do I calculate a 30% margin?
Divide your cost per unit by 0.70. The result is the price at which 30% of the money you take is profit.
What margin is cost x 2?
Doubling your cost is a 100% markup, which is a 50% margin. It only works if the cost you doubled already includes your time and fixed costs.
Keep reading
- How to Price Handmade ProductsThe full method for pricing handmade products: materials per unit, packaging, your time, fixed costs, marketplace fees and profit, with a worked example.
- Wholesale Pricing for Handmade ProductsHow to set a wholesale price for shops, cafés and resellers: a smaller margin than retail, never below your full cost per unit, with a worked example.
- Pricing with Marketplace FeesWhy adding a marketplace fee at the end leaves you short, and how to work your price backwards from the fees so you keep your margin on every sale.