People type this into search every day: markup vs margin.
The usual answer mixes the two words. A shop says “I need 35 percent.” That often means profit as a share of the selling price. Then someone adds 35 percent to cost and the month comes up short.
This page is a labeled example. It is not a market-price survey, and it is not tax advice.
Margin is a share of the price
The markup vs margin calculator starts from the margin you want and solves for price:
selling price = cost ÷ (1 − margin)
markup = profit ÷ cost
Unit cost is the variable cost of one unit. Fixed overhead and tax are excluded.
Fig 1
Cost up to a price
Divide cost by the share that is not profit
A $65 cost and a 35% margin need a $100 price.
IRS Publication 334, Tax Guide for Small Business, Chapter 7, figures gross profit as net receipts minus cost of goods sold. That is the same leftover the margin formula uses. “Testing Gross Profit Accuracy” then says to divide gross profit by net receipts and compare that percentage with your markup policy.
The Publication 334 example marks goods so the seller realizes a 33 1/3% gross profit on sales. Net receipts are $300,000. Cost of goods sold is $200,000. Gross profit is $100,000. 100000 ÷ 300000 = 33 1/3%. That test is a margin on sales, even though the booklet calls the shop rule a markup policy.
The published $65 cost, 35% margin
Here are the calculator defaults:
- unit cost: $65
- target gross margin: 35%
- units sold: 100
Selling price: 65 ÷ (1 − 0.35) = 65 ÷ 0.65 = $100.00
Gross profit per unit: 100 − 65 = $35.00
Markup on cost: 35 ÷ 65 = 53.8%
Gross profit at 100 units: $3,500.00
Calculator result
Markup vs margin
- Unit cost
- $65.00
- Target gross margin
- 35%
- Units sold
- 100 units
$100.00
selling price per unit
- Markup on cost
- 53.8%
- Gross profit / unit
- $35.00
- Gross profit at quantity
- $3,500.00
Fig 2 · 1/2
What $100 is made of
$65 cost, 35% target margin
Cost
$65.00
Profit
$35.00
Cost is $65 of the $100 price.
The $35 leftover is the 35% margin, and a 53.8% markup on cost.
Add 35% to the $65 cost and you get 65 × 1.35 = $87.75. Profit is $22.75. Margin on that price is 22.75 ÷ 87.75 = 25.9%. You asked for 35% of the selling price and built a 25.9% margin.
Fig 3 · 1/2
35% margin versus 35% markup
$65 unit cost
Selling price
35% markup
$87.75
35% margin
$100.00
A 35% markup is an $87.75 price.
A 35% margin is a $100.00 price.
The same $65 at four margins
Hold cost at $65. Change only the target margin.
- 25% margin: price $86.67. Markup 33.3%. Profit $21.67. At 100 units, $2,166.67.
- 35% margin (default): price $100.00. Markup 53.8%. Profit $35.00. At 100 units, $3,500.00.
- 40% margin: price $108.33. Markup 66.7%. Profit $43.33. At 100 units, $4,333.33.
- 50% margin: price $130.00. Markup 100%. Profit $65.00. At 100 units, $6,500.00.
A 50% margin is a double of cost. A 50% markup would have been 65 × 1.50 = $97.50, which is a 32.50 ÷ 97.50 = 33.3% margin. That 33.3% is the Publication 334 sales spread: price = cost ÷ (2/3) = 1.5 × cost.
Fig 4 · 1/4
Four margins on a $65 cost
Price = 65 ÷ (1 − margin)
- Selling price
| Category | Selling price |
|---|---|
| 25% | $87 |
| 35% | $100 |
| 40% | $108 |
| 50% | $130 |
A 25% margin is $86.67.
A 50% margin is $130.00. Markup on that price is 100%.
The unit price post divides sticker by quantity. This tool divides leftover by price, or leftover by cost.
A project quote uses the same margin math
The project quote calculator builds a cost, pads it for risk, then applies a target margin:
risk-adjusted cost ÷ (1 − target margin)
The internal hourly rate already covers normal overhead. Margin is measured against the final selling price.
Defaults:
- estimated labor hours: 80
- internal hourly rate: $95
- direct expenses: $1,200
- scope-risk allowance: 15%
- target profit margin: 25%
Labor plus expenses: 80 × 95 + 1200 = $8,800.00
Risk-adjusted cost: 8800 × 1.15 = $10,120.00
Project quote: 10120 ÷ (1 − 0.25) = 10120 ÷ 0.75 = $13,493.33
Expected gross profit: $3,373.33
Effective client hourly price: 13493.33 ÷ 80 = $168.67
Calculator result
Project quote
- Estimated labor hours
- 80 hrs
- Internal hourly rate
- $95.00
- Direct expenses
- $1,200.00
- Scope-risk allowance
- 15%
- Target profit margin
- 25%
$13,493.33
project quote
- Risk-adjusted cost
- $10,120.00
- Expected gross profit
- $3,373.33
- Effective client hourly price
- $168.67
That $168.67 is what the client pays per hour on this path. The $95 is what you told the tool the hour costs you. The freelance rate post builds the floor that often belongs in that $95 box.
Keep the $10,120.00 cost and change only the margin.
- 15% margin: quote $11,905.88. Profit $1,785.88. Client hour $148.82.
- 25% margin (default): quote $13,493.33. Profit $3,373.33. Client hour $168.67.
- 35% margin: quote $15,569.23. Profit $5,449.23. Client hour $194.62.
Fig 5 · 1/3
One $10,120 cost, three margins
80 hours, $95, $1,200 expenses, 15% risk
- Quote
| Category | Quote |
|---|---|
| 15% | $12k |
| 25% | $13k |
| 35% | $16k |
A 15% margin quotes $11,905.88.
A 35% margin quotes $15,569.23.
If you mark the $10,120.00 up by 25% instead of taking a 25% margin, the quote is 10120 × 1.25 = $12,650.00. Profit is $2,530.00. Margin on that quote is 2530 ÷ 12650 = 20.0%. The 25% you typed into a markup habit is not the 25% the quote tool uses.
How many units cover the month
Price only works if enough units sell. The business break-even calculator uses the SBA’s unit formula.
The SBA break-even page writes:
fixed costs ÷ (price − variable cost per unit)
That is also the calculator, plus a target-profit version:
(fixed costs + target profit) ÷ contribution per unit
Price and unit cost stay constant. One average unit stands in for the catalog.
Defaults:
- monthly fixed costs: $18,000
- selling price per unit: $120
- variable cost per unit: $48
- target monthly profit: $10,000
Contribution per unit: 120 − 48 = $72.00
Units to break even: 18000 ÷ 72 = 250, shown as 250 units
Break-even revenue: 250 × 120 = $30,000.00
Units for the $10,000 target: (18000 + 10000) ÷ 72 = 388.89, shown as 389 after the ceiling
Calculator result
Business break-even
- Monthly fixed costs
- $18,000.00
- Selling price per unit
- $120.00
- Variable cost per unit
- $48.00
- Target monthly profit
- $10,000.00
250 units
to break even
- Units for target profit
- 389
- Contribution / unit
- $72.00
- Break-even revenue
- $30,000.00
Put the $100 default selling price and the $65 default cost into this tool, and keep $18,000 fixed and $10,000 target profit.
Contribution: 100 − 65 = $35.00
Break-even: 18000 ÷ 35 = 514.29, shown as 515 units
Break-even revenue: 515 × 100 = $51,500.00
Units for the target: 28000 ÷ 35 = 800, shown as 800
Fig 6 · 1/2
Revenue versus the $18,000 fixed line
$120 price, $48 variable cost
Monthly dollars
- Revenue
- Variable + fixed
| Point | Revenue | Variable + fixed |
|---|---|---|
| 0 | $0.00 | $18k |
| 125 | $15k | $24k |
| 250 | $30k | $30k |
| 389 | $47k | $37k |
| 500 | $60k | $42k |
At 125 units, revenue is $15,000 and still under the fixed costs.
At 250 units, revenue is $30,000 and the month breaks even.
I built those points from the same $120 and $48. Revenue is 120 × units. Variable-plus-fixed is 48 × units + 18000. At 389 units, revenue is 389 × 120 = $46,680. Cost is 389 × 48 + 18000 = $36,672. The leftover is $10,008, a dollar of rounding above the $10,000 target because 389 is the ceiling of 388.89.
Hold variable cost at $48 and the $18,000 fixed line. Change only price.
- $100 price: contribution $52.00. Break-even 347 units. Target 539. Revenue at break-even $34,700.00.
- $120 price (default): contribution $72.00. Break-even 250 units. Target 389. Revenue $30,000.00.
- $140 price: contribution $92.00. Break-even 196 units. Target 305. Revenue $27,440.00.
A higher price on this path needs fewer units. It is still a labeled example. The SBA page says the unit formula is an estimate for a plan, not your books after the month closes. It also suggests adding about 10% for miscellaneous costs you cannot predict. That 10% is their planning note. It is not in the Calculum formula.
What the three tools leave out
The markup card ignores rent, salaries, and tax. Those belong in the break-even fixed box, or in the quote’s hourly rate.
The quote card treats one project. Repeat work still needs the month to clear the fixed line.
The break-even card uses one average unit. A mix of products needs either one blended unit or a separate pass per product. The SBA page says the same thing.
Open the markup vs margin calculator with the unit cost and the margin you mean as a share of price. Open the project quote calculator when the “unit” is a pile of hours. Open the business break-even calculator when you need the count that pays the rent.