Margin vs Markup Calculator

What this tool does

CM8-361 converts between margin and markup, prices from a target margin, and shows what discounting actually does — both to the margin you achieve and to the volume you would need to sell to make the same money afterwards.

Everything runs inside this single file — no account, no upload, no network request of any kind. Your costs and prices are the most commercially sensitive numbers you have.

The difference, in one paragraph

Margin is profit as a share of the price. Markup is profit as a share of the cost. Buy for 100 and sell for 150 and you have made 50: that is a 50% markup, because 50 is half of the cost, and a 33.3% margin, because 50 is a third of the price. Same money, two numbers, and they are never equal except at zero.

The four formulas

The last one is the one worth committing to memory. To hit a 40% margin, divide the cost by 0.6 — do not add 40%, which produces a 28.6% margin and a shortfall you will not notice until the year end.

The reference table in the report prints the conversion for the common margins, using your own first item's cost so the prices are recognisable.

Why the confusion costs money

Because the error is always in the same direction: markup is always the bigger number, so anybody who says "margin" while meaning "markup" believes they are making more than they are. On a 40% target the shortfall is over eleven points of margin, every sale, silently.

It shows up in three places specifically: pricing rules passed down verbally, discount authority given as "anything above 30% margin", and quotes built in a spreadsheet by adding a percentage to cost. All three feel right and all three under-price.

The sample includes an item priced by adding half onto cost, described exactly as most people would describe it, and the tool shows it as a 33% margin.

What belongs in the direct cost

Everything that only happens because you made or bought this one thing: materials, the labour that went into it, packaging, delivery in, any subcontracted operation, and the commission if there is one.

What does not belong: rent, salaries of people who would be paid anyway, software, insurance, the van's road tax. Those are overheads. They are real and they must be paid for, but spreading them into a unit cost makes the margin figure move whenever volume moves, which makes it useless for pricing.

Set them in the overheads box instead, and the tiles will show what is left after they are covered.

Pricing from a target margin

Choose "I want to hit a target margin" and the tool works the price out from the cost. Leave the wanted-margin field blank and it uses the target in Settings, so you can price a whole list to one rule and then override the exceptions.

Two things a target margin cannot know: what the customer will pay, and what a competitor charges. Cost-plus pricing is a floor, not a strategy — its real job is telling you when a price somebody has proposed is below the line.

What a discount really costs

A discount comes entirely out of profit. The cost does not move, so the whole reduction lands on the part you keep. On a 30% margin, a 10% discount removes a third of the profit.

Record the discount you routinely give in the item's own discount field. Most businesses have a list price nobody pays and an achieved price nobody has calculated; the achieved margin column is the one that reconciles to your accounts.

The volume you would need

This is the number to have in your hand when somebody proposes a discount for volume. At a 30% margin a 10% discount needs 50% more volume to make the same money. At a 20% margin the same discount needs 100% more — you would have to double the business to stand still.

Where the discount would take the price below cost, no volume can recover it and the tool says so rather than printing a number. Selling at a loss faster does not help.

Margin against contribution

These answer different questions and both matter. Margin percentage tells you how much of each sale you keep; contribution tells you how much money the item actually brings in. A 7% margin sold four hundred times a period can carry more overhead than a 60% margin sold three times, and a pricing review that only looks at percentages will cut exactly the wrong products.

The blended figure

Weighted by what you actually sell, at the prices you actually achieve — not an average of the percentages, which would give a product sold twice the same weight as one sold two thousand times. This is the figure to compare with your accounts, and if it does not match, the difference is usually discounts nobody recorded.

Gross margin is not profit

Everything above is gross margin. Rent, salaries, insurance, software, finance costs and tax all come out afterwards. A business at 40% gross margin with overheads eating 45% of revenue is losing money on every sale it makes.

Put your overheads for the period into Settings and the tiles show what is left once they are covered. It is a blunt calculation — it does not allocate overhead to items, deliberately — but it answers the only question that matters at the end of a pricing review: does this add up.

Limits worth knowing

• Volumes are assumed independent. Discounting one item usually moves volume on others, and this tool cannot see that.
• Unit cost is assumed constant. In reality it falls with volume up to a point and then rises sharply when you run out of capacity, which is exactly the point a volume discount tends to reach.
• Nothing here handles tax. Prices and costs should both be entered on the same basis, and if one includes sales tax and the other does not, every figure will be wrong.
• Mixed-currency lists will not work — one currency at a time.

Printing and sharing

The Report tab prints the tiles, charts and both tables with a title block you fill in. The conversion reference table is worth printing on its own and leaving where quotes get written.

Saving your work

The list is held in this browser, on this computer, and stays there between visits. Use the backup button to write a JSON file you control.

Accuracy & disclaimer

Every cost and price here is yours, and the tool applies the four formulas above exactly. It has no view about whether a price is competitive, whether a cost is complete, or whether a discount was worth giving. It is arithmetic, not advice.