Profit and loss explained: margin vs markup
If you sell anything, from handmade items to online orders, you need to know whether each sale really makes money. Here is how profit and loss work, and why margin and markup are not the same thing.
Profit and loss in one line
When you sell for more than you paid, the difference is profit. When you sell for less, the difference is a loss.
Profit = selling price − cost price. Loss = cost price − selling price.
Profit and loss percentage
School books and everyday trade measure the percentage against the cost price. Profit % = profit ÷ cost × 100. If you buy a bag for 40 and sell it for 50, profit is 10 and the profit percent is 10 ÷ 40 × 100 = 25%. Sell the same bag for 30 and the loss is 10, which is also 25% of cost.
Markup versus margin
Both describe profit, but they use different bases.
- Markup = profit ÷ cost × 100. This is what the profit percent above measures.
- Margin = profit ÷ selling price × 100.
For the bag: profit is 10, cost is 40 and price is 50. Markup is 25%. Margin is 10 ÷ 50 × 100 = 20%. The same sale, two correct numbers. A 50% markup equals only a 33.3% margin, and a 100% markup equals a 50% margin.
Mistakes that hide losses
- Leaving out costs. Delivery, packaging, payment fees and your platform's commission all belong in the cost price.
- Quoting the wrong percentage. If a supplier talks about margin and you think in markup, your prices will be off. Always ask which one is meant.
- Ignoring discounts. A 20% sale does not remove 20% of your profit. It can remove all of it if your margin is thin.
Pricing for a target margin
If you want a certain margin, divide your cost by one minus the margin. For a cost of 60 and a target margin of 40%, the price is 60 ÷ 0.60 = 100. Check it: profit is 40, and 40 is 40% of 100. Using the wrong formula, such as adding 40% to cost, would give 84 and a margin of only 28.6%. This is why knowing the difference between margin and markup matters.
A quick pricing method
Start with your full cost, decide the profit you need, add them together, then test the price with the calculator. If you want a 30% markup on a cost of 50, the price is 50 × 1.30 = 65.
The profit and loss calculator shows profit or loss and the percentage on cost in one step.
This article is general information, not accounting or tax advice.
Related pages
Profit and loss calculator
Enter cost and price.
Percentage and discount guide
The maths behind percentages.
Profit and loss FAQ
12 quick answers.
Related blog posts and countries
Read all how-to posts. Local guides: Pakistan · India · United States.