Two percentages, two denominators
Markup divides profit by cost. Margin divides profit by price. If an item costs $40 and sells for $60, the profit is $20. Markup is $20 ÷ $40 = 50%. Margin is $20 ÷ $60 = 33.3%. Both statements are true; they answer different questions.
Markup is useful when you build a price from a known cost. Margin is useful when you compare profitability across products, because revenue is the common base. A store that reports a 50% markup as a 50% margin overstates its profitability by a wide margin.
Convert between the two
From markup to margin: margin = markup ÷ (1 + markup). From margin to markup: markup = margin ÷ (1 − margin). With decimals, a 50% markup becomes 0.5 ÷ 1.5 = 33.3%; a 40% margin becomes 0.4 ÷ 0.6 = 66.7%.
The conversion is not symmetrical, and the gap grows as the percentage rises. A 100% markup is a 50% margin. A 90% margin is a 900% markup. That is why the same product can look modest in one report and extraordinary in another.
Worked examples from a $40 cost
Cost $40 and 50% markup: price = $40 × 1.5 = $60; profit = $20; margin = 33.3%. Cost $40 and 40% target margin: price = $40 ÷ 0.6 = $66.67; profit = $26.67; markup = 66.7%. Cost $40 and a $60 market price: profit = $20; markup = 50%; margin = 33.3%.
A price below cost is also valid: cost $40, price $30, profit −$10, markup −25%, margin −33.3%. The tool shows the loss rather than hiding it behind a zero.
Where stores get the two confused
The most common error is pricing with a target margin but calculating with a markup formula. If you want a 40% margin and multiply $40 by 1.4, you get $56, which is only a 28.6% margin. The correct price for a 40% margin is $66.67.
The second error is treating margin as profit after payment and advertising. This calculator deliberately stops at unit cost. A 40% gross margin can become a much thinner contribution margin after gateway fees, shipping and acquisition cost. Use the Shopify profit margin calculator or break-even price calculator for that next layer.
Where the model stops
A zero cost makes markup undefined, so the calculator requires a positive unit cost. A 100% margin would require an infinite price, so it returns an infeasible state instead of a huge number. Negative costs, prices or markups are rejected rather than silently converted.
The tool also ignores tax, currency conversion, quantity breaks and platform-specific fee rules. It is a unit-economics conversion, not a quote or a complete pricing strategy.
How to use the result in a pricing decision
Start with the mode that matches the number you already have. If you know the market price, use Cost + price to see the implied margin. If you know the margin your business needs, use Cost + margin to find the price, then compare it with what customers currently pay.
Before publishing a price, subtract the fees and advertising that apply to your store. The break-even price calculator does that in one step, and the Shopify profit margin calculator shows the per-order contribution after those costs.