Profit margin and markup aren't the same thing
It's one of the most common pricing mistakes: using the word "margin" when you're actually calculating markup, or the other way around. Both start from the same dollar profit, but divide that profit by different bases. Profit margin divides profit by the selling price, answering "what share of what the customer paid is profit?" Markup divides profit by cost, answering "how much did I raise the price above what it cost me?" Since the selling price is always higher than the cost (when there's a profit), profit margin is always a smaller number than markup for the same sale.
Formulas used
Profit: profit = selling price − cost
Profit margin: margin (%) = (profit ÷ selling price) × 100
Markup: markup (%) = (profit ÷ cost) × 100
Price for a target margin: price = cost ÷ (1 − margin ÷ 100)
Price for a target markup: price = cost × (1 + markup ÷ 100)
Practical example: why the same percentage gives different prices
For a product costing $45, a 40% profit margin requires a selling price of $75 ($45 divided by 0.60), generating $30 of profit. A 40% markup on that same $45 cost, on the other hand, only requires a price of $63 ($45 times 1.40), generating $18 of profit. The same "40%" figure produces very different prices and profits depending on which of the two formulas is actually being used — which is exactly why it matters to know which one your supplier, competitor, or spreadsheet is really calculating.
When to use margin and when to use markup
Profit margin is more commonly used for financial analysis and comparing companies, because it ties directly to total revenue: a 20% margin means 20% of everything the business bills becomes profit. Markup is more commonly used when pricing individual products from their purchase or production cost, especially in retail, because it starts from a number the seller already has on hand (the cost) to arrive at the selling price.
Watch out for profit margins close to 100%
Because the price-from-margin formula divides cost by (1 minus the margin), as the target margin approaches 100%, the required price grows out of control — and at exactly a 100% margin, the calculation becomes impossible (division by zero). That happens because a 100% margin would mean the product's cost is zero, which isn't a realistic business scenario.
What this calculator doesn't account for
These calculations only consider the direct cost of the product or service, without including the business's fixed expenses (rent, salaries, utilities), sales taxes, card processing fees, or marketplace commissions, which pull the real net margin below the gross margin calculated here. Use the results as a first step in pricing, alongside a full cost analysis of the business.