Markup is how much you add on top of your cost, measured against the cost. Margin is how much you keep, measured against the price. The same numbers give different percentages: if something costs you $10 and you sell it for $15, your markup is 50% but your margin is 33%. Anyone who prices thinking "I make 50%" while using markup actually keeps a third of every sale.
The two formulas
Always work from the loaded cost per unit, not just the ingredients.
- Markup = (price − cost) ÷ cost
- Margin = (price − cost) ÷ price
The profit in dollars is the same in both (price − cost). What changes is what you divide it by. Markup compares it with what you spent; margin compares it with what you charged. That is why margin is always smaller than markup, except when both are zero.
Converting one into the other
- Markup to margin: margin = markup ÷ (1 + markup)
- Margin to markup: markup = margin ÷ (1 − margin)
Write the percentages as decimals: 50% is 0.50.
| Markup | Margin it leaves you | Price if cost is $10 |
|---|---|---|
| 25% | 20% | $12.50 |
| 50% | 33.3% | $15.00 |
| 75% | 42.9% | $17.50 |
| 100% | 50% | $20.00 |
| 150% | 60% | $25.00 |
| 200% | 66.7% | $30.00 |
Look at the 100% row. "I just double it" sounds like making 100%, but it leaves you half of each sale. And that half still has to pay for everything that did not make it into the cost: the market stall fee, the channel commission, the jars that broke.
The mistake that costs the most
The classic mistake is wanting a margin and applying it as a markup. You want to keep 40% of every sale, so you multiply your cost by 1.40 and call it done. At that price your real margin is 0.40 ÷ 1.40 = 28.6%. You are more than eleven points short.
To actually keep a given margin, price like this:
price = cost ÷ (1 − margin)
With a cost of $10 and a 40% margin: 10 ÷ 0.60 = $16.67. Check: (16.67 − 10) ÷ 16.67 = 40%. The guide on setting a price that hits your target margin shows how to do it when there is also an app commission or sales tax.
Worked example: a jar of granola
You sell 500 g jars of granola. You have already worked out the loaded cost of one jar: $4.80 for oats, nuts, honey, the jar, the label, your time and the oven.
What you did: added 50% "to make half".
- Price before tax: 4.80 × 1.50 = $7.20
- Profit per jar: 7.20 − 4.80 = $2.40
- Real margin: 2.40 ÷ 7.20 = 33.3%
What you wanted: to keep half of every sale, a 50% margin.
- Price before tax: 4.80 ÷ (1 − 0.50) = $9.60
- Profit per jar: 9.60 − 4.80 = $4.80
The difference: $4.80 − $2.40 = $2.40 less per jar. At 60 jars a month, that is $144 a month you are not making because you used markup instead of margin.
That does not mean the right price is $9.60. It means $7.20 does not give you what you thought. If your customers will not pay $9.60, the question changes: whether the product is worth making, whether you can bring the cost down, or whether it belongs in a different channel. That is what the contribution margin of each product tells you.
When markup is useful
Markup is not wrong; it is another way of saying the same thing. It is handy for quick thinking from the cost ("I charge double"), and it is how many shops describe what they add to what they buy from you. If you sell wholesale to a café and the owner says they need a 30% markup, they keep 0.30 ÷ 1.30 = 23% of the final shelf price.
What matters is knowing which one you are using when you set a price, and checking the result as a margin at the end. Margin is what you get paid; markup is only a route to the price.
And the competition
Looking at what others charge tells you whether your price is possible, not how much you make. Two stalls can charge the same and have very different margins depending on what it costs them to produce. The guide on pricing against competitors shows how to use their prices without copying them, and how to price a food product walks through the full method from start to finish.
Do it with the calculator
Put your recipe into the food cost calculator with the margin you want, and it gives you the price you need, with tax and channel commission included, without converting anything by hand.
Frequently asked questions
Is a 100% markup the same as a 100% margin?
No. A 100% markup means you charge double what it costs you, which is a 50% margin. A 100% margin is impossible: it would mean the product cost you nothing.
Should I price with markup or margin?
Think in margin, because it is what you keep from every dollar of sales. To get a price from a target margin, use price = cost ÷ (1 − margin).
Do I calculate margin before or after sales tax?
Before. Sales tax is collected for the government, not earned by you. Work out the margin on the price without tax, then add tax on top if your prices include it.
Which cost should I use for markup?
The loaded cost per unit: ingredients, packaging, your time, gas and waste. Using ingredients alone makes the markup look generous and leaves the price too low.