Margin and markup calculator

A markup calculator works out how much to add to your cost to reach a price, and what profit margin that price leaves. The markup formula is (price less cost) divided by cost, times 100. The margin formula divides the same profit by the price instead. So an item that costs $50 and sells for $80 has a 60% markup and a 37.5% margin. Enter your cost and one other number above to get the rest, before and after GST.

Margin and markup, explained

Both measure the same profit, against a different number. Markup compares your profit with what the item cost you. Margin compares it with what the customer paid.

Buy something for $60 and sell it for $90, and you make $30. That's a 50% markup ($30 on $60) and a 33% margin ($30 on $90). Margin is always the smaller number, which is why mixing the two up makes a business look more profitable than it is.

What is the markup formula?

• Margin = (price less cost) divided by price.
• Markup = (price less cost) divided by cost.
• Price for a target margin = cost divided by (1 less the margin).
• Price for a markup = cost times (1 plus the markup).

What about GST?

Work margin and markup out before GST, because the 10% isn't yours to keep. Business.gov.au describes GST as "a tax of 10% on most goods, services and other items", which you collect and pass on to the ATO. If your price includes GST, divide it by 1.1 first. The calculator does this for you when you choose "Price includes GST".

What is markup?

Markup is the amount you add on top of your cost to set a price, written as a percentage of that cost: your markup percentage. It's the basis of cost-plus pricing, which business.gov.au describes as working out the total cost of making and supplying something, then adding a mark-up or margin. Most trades, retailers and wholesalers price this way, because you start with what you paid and build up from there.

Say a florist pays $40 for the flowers, ribbon and wrap in a bouquet and sells it for $70. The $30 added is a 75% markup: $30 divided by $40.

What is margin?

Margin, or gross margin, is the same profit written as a percentage of the selling price. It tells you how many cents of every dollar a customer pays you keep after the cost of the item or job.

The florist's $30 profit on a $70 bouquet is a 43% margin: $30 divided by $70. Of every dollar a customer spends, about 43 cents is left to pay rent, wages, advertising and, finally, profit.

The difference between margin and markup

The difference is the number you divide by. Markup divides profit by cost, and margin divides it by price. When you make a profit the price is always bigger than the cost, so the margin is always the smaller percentage of the two.

That gap matters when someone says "we work on 40%". A 40% markup leaves a 28.6% margin, while a 40% margin needs a 66.7% markup. Check which one a supplier, accountant or staff member means before you set prices from it.

Common markup percentages and the margins they give

• A 25% markup gives a 20% margin.
• A 33.3% markup gives a 25% margin.
• A 42.9% markup gives a 30% margin.
• A 50% markup gives a 33.3% margin.
• A 66.7% markup gives a 40% margin.
• A 100% markup gives a 50% margin.
• A 150% markup gives a 60% margin.
• A 200% markup gives a 66.7% margin.

How to calculate markup

1. Work out your full cost for one item or job, before GST: stock or materials, plus freight, packaging, card fees and the labour that goes into it.
2. Take that cost away from your price (also before GST) to get your gross profit.
3. Divide the gross profit by the cost and multiply by 100.

Say a garden designer's materials and labour for a garden bed come to $400, and they quote $640 before GST. The gross profit is $240, so the markup is $240 divided by $400, or 60%. The margin on the same job is $240 divided by $640, or 37.5%.

How to calculate a price from the margin you want

To hit a target margin, divide your cost by one less the margin. For a 40% margin on an item that costs you $60, divide $60 by 0.6 to get a price of $100 before GST.

A common slip is to add the margin to the cost instead. Adding 40% to $60 gives $84, which earns $24, a margin of only 28.6%. The calculator above works the price out from either number, so you can see both side by side.

How to use the markup calculator

1. Enter what the item or job costs you, before GST.
2. Choose what you already know: your price, the margin you want or your markup.
3. Tell it whether your price includes GST. If it does, the calculator takes the GST out before it works out margin and markup.
4. Read the answer: the price before and after GST, the gross margin, the markup and the gross profit on each sale.

Try a few markups one after another to see how the price, profit and margin move together before you settle on a number.

Pricing for profitability

Margin and markup measure gross profit: what each sale leaves after its direct costs. The profitability of the whole business depends on what that gross profit has to cover next, such as rent, wages, software, insurance and advertising.

Say a café runs a 65% gross margin on coffee and its overheads come to 55% of sales. That leaves 10 cents of net profit on every dollar. If overheads rise and prices stay put, that 10 cents shrinks fast, which is why it helps to check your margins whenever costs change.

Two other calculators help with profitability. The price increase calculator shows how many sales you could lose after a price rise and still make the same profit, and the cost per lead calculator shows how much of your margin you can spend on ads to win a customer.

Markup pricing for services

Service businesses can use markup too. Their cost is mostly time, so count your labour at what it costs the business, including on-costs such as super and leave, then add materials and travel. A markup on that full cost gives a price that pays for the hours as well as the parts.

Say an electrician's labour costs the business $70 an hour and a job takes three hours plus $150 in parts. The full cost is $360. A 50% markup sets the price at $540 before GST, a 33.3% margin.

Pricing mistakes that eat into margin

• Mixing up margin and markup. Pricing at a 30% markup when you meant a 30% margin leaves you about 7 points short.
• Working from prices that include GST. The 10% belongs to the ATO, so a margin worked out on a GST-inclusive price looks better than it is.
• Leaving costs out. Freight, card fees, packaging, wastage and returns all belong in the cost of each sale.
• Discounting off a thin markup. Take 20% off a $90 item that cost you $60 and the price drops to $72. Profit falls from $30 to $12, a 60% drop in what each sale earns.
• Setting prices once and leaving them. Supplier costs move. Business.gov.au advises you to "review your prices at least once a year", and again whenever your costs or the market change. Run your main products and services through the calculator each time a cost changes.