Frequently asked questions

Margin is profit as a percentage of selling price. Markup is profit as a percentage of cost. They measure the same profit dollars but use different denominators, so the percentages are always different — markup is always larger than margin for the same product.

Use the formula: Markup = Margin ÷ (1 − Margin). So a 40% margin equals 0.4 ÷ 0.6 = 66.7% markup. A 50% margin equals 100% markup. A 25% margin equals 33.3% markup.

Use the formula: Margin = Markup ÷ (1 + Markup). So a 50% markup equals 0.5 ÷ 1.5 = 33.3% margin. A 100% markup (keystone pricing) equals 50% margin. A 25% markup equals 20% margin.

No. A 50% margin requires a 100% markup. A 50% markup gives you only a 33.3% margin. This is the most expensive mistake in pricing — confusing the two costs money on every sale.

No. Margin is profit ÷ selling price, so the maximum is 100% (which would mean cost was zero). Markup has no upper limit because it divides by cost — apparel and jewelry routinely use 200-500% markup.

Suppliers think in markup because they start from their cost and add a percentage. Accountants think in margin because they start from revenue and measure what percentage is profit. Both are correct — the denominators just differ.

Profit margin = (Revenue − Cost) ÷ Revenue × 100. For example, $100 selling price minus $60 cost = $40 profit. $40 ÷ $100 = 40% profit margin.

Markup = (Selling Price − Cost) ÷ Cost × 100. So a $60 cost item sold for $100 has a markup of $40 ÷ $60 = 66.7%.

Selling price = Cost ÷ (1 − target margin). To earn 40% margin on a $30 cost item, selling price = $30 ÷ 0.6 = $50.

Selling price = Cost × (1 + markup). With a $30 cost and 50% markup, selling price = $30 × 1.5 = $45.

Break-even units = Fixed costs ÷ Contribution margin per unit. Contribution margin = Price − Variable cost. If fixed costs are $5,000, price is $20, and variable cost is $4, break-even = $5,000 ÷ $16 = 313 units.

Use =(B2-A2)/B2 where A2 is cost and B2 is price, then format as percentage. For markup: =(B2-A2)/A2. To find target price: =A2/(1-target_margin).

A 10% net profit margin is generally considered healthy across most industries. 20%+ is excellent. Below 5% is fragile. But the right benchmark depends entirely on industry: SaaS hits 25%+, retail averages 2-5%, restaurants 3-9%, grocery 1-3%.

Across all sectors, US small businesses average 7-10% net profit margin. The number varies wildly by industry — services and software run higher, retail and hospitality lower.

Restaurant net profit margins average 3-9%. Fine dining: 0-5%. Full-service casual: 3-8%. Fast casual: 4-10%. Quick-service: 5-12%. Bars and pubs: 10-15%. Food cost typically runs 28-32% of revenue.

SaaS gross margins typically run 70-85%, with best-in-class hitting 80%+. Net margins for mature SaaS are 20-35%; growth-stage SaaS often runs negative net while gross stays healthy. The Rule of 40 (growth + margin ≥ 40%) is the standard health metric.

Retail gross margins typically run 20-50% (varies by category). Net margins are much thinner: specialty retail 2-8%, big-box 2-4%, grocery 1-3%. Most retail competes on volume, not margin.

Keystone pricing is doubling the wholesale cost to set retail price — a 100% markup, which equals 50% margin. Still common in apparel and gift retail. Modern variants include 'double keystone' (200% markup = 67% margin) and partial keystone for commodities.

Use markup to set price from a known cost (working bottom-up). Use margin to evaluate profitability from revenue (working top-down). Many businesses use markup internally for pricing and report margin externally to investors and lenders.

Two levers: increase revenue per sale or decrease cost per sale. Revenue moves typically have 2-5× the impact: raise prices selectively, shift mix toward high-margin SKUs, reduce discounting, sell more to existing customers. Then renegotiate supplier contracts and reduce shrinkage.

Net profit margin does. Gross margin typically does not — it usually counts only direct product cost (COGS). To see true profitability, calculate net margin: revenue minus product cost, shipping, fees, and ad spend.

Industry norms: retail 50-100% markup, wholesale 25-40%, construction (general contractor) 15-25%, specialty trades 50-100%. The right answer depends on your cost structure, competition, and positioning.

Cost-plus pricing calculates total cost and adds a fixed markup percentage to set price. It's the oldest pricing method in business — common in manufacturing, retail, and contract work. Limited by leaving money on the table for premium positioning.

Value-based pricing sets price by customer perceived value, not seller cost. A software product that saves a customer $10,000/year might price at $200/month — well above cost but capturing fair share of value delivered. Common in SaaS and premium services.

Shopify Basic charges 2.9% + $0.30 per transaction in the US (using Shopify Payments). Shopify (mid-tier) is 2.7% + $0.30. Shopify Plus is 2.25% + $0.30. Using a third-party payment processor adds an extra 2% fee unless you're on Plus.

Etsy charges a 6.5% transaction fee + $0.20 listing fee + payment processing (around 3% + $0.25 in the US). With Offsite Ads enabled (mandatory for some shops), the take rate climbs to 21.5% + $0.20.

Amazon FBA combines a referral fee (8-15% in most categories, up to 45% for accessories) plus FBA fulfillment fees ($3.07-$5.68 per unit for small/medium items, more for oversize). Plus monthly storage and optional advertising.

Only in net margin. Stripe charges 2.9% + $0.30 per US transaction. To see actual take-home, include payment processing fees in your calculation. Our calculator's fees section handles this automatically.

Subtract referral fee (% of sale) and FBA fee (flat per unit) and shipping cost from selling price, then compute margin on what's left. For a $25 item with 15% referral + $3.50 FBA + $0.85 packaging, you net $25 − $3.75 − $3.50 − $0.85 = $16.90, then subtract product cost to get profit.

Ecommerce typically shows 50-65% gross margin collapsing to 10-15% net. The 35-50 point gap is: platform fees (3-7%), payment processing (3%), shipping (4-8%), ad spend / CAC (15-25%), returns (2-5%), and packaging (2-4%). Stack them and they consume most of the gross.