Pricing
Margin, markup, and the price that reaches them
Both numbers at once, because quoting one and thinking about the other is what the mistake looks like.
What is the difference between margin and markup?
Margin is profit as a share of the price you sell at. Markup is the same profit as a share of what the item cost you. They are two different numbers from the same two figures, and confusing them is expensive: a fifty per cent markup is a thirty-three per cent margin, so a seller pricing for one while believing they have the other loses the gap on every unit. This calculator shows both at once. It also runs the sum backwards, which is the half most spreadsheets get wrong: the price that reaches a target margin is not cost divided by one minus the margin, because percentage fees grow with the price you are solving for. The fees belong in the denominator, and here they are.
Your result
Enter your costs and a price, and the margin appears here.
That margin cannot be reached at any price. The target and the fee rate together take the whole of the price and leave nothing to pay for the item itself, so raising the price raises the fee with it and never catches up. Lower the target, or lower the fee rate.
| Target margin plus fee rate |
|---|
Margin, as a share of price
| Price excluding tax | |
|---|---|
| Tax | |
| Price including tax | |
| Cost per unit | |
| Fees | |
| Profit per unit | |
| Margin, as a share of price | |
| Markup, as a share of cost | |
| Price at which you break even |
How this is worked out
Both numbers at once, because quoting one and thinking about the other is what the mistake looks like.
- profit = price excluding tax, minus cost, minus other cost, minus fees
- margin = profit divided by the price excluding tax
- markup = profit divided by the cost
- price for a target margin = cost plus other cost plus fixed fee, all divided by one minus the target margin minus the percentage fee rate
A worked example
Look at the denominator in the last line. The version everybody writes from memory divides only by one minus the target margin, which quietly ignores that the percentage fee takes its cut of the higher price too, and lands the seller short of the margin they aimed for. On a forty per cent target at a five per cent fee the naive price is about eight per cent too low, every unit, forever. When the target and the fee rate together reach one hundred per cent the denominator is gone and no price works, which this calculator says in words rather than printing a very large number.
What this assumes
- Margin is worked out on the price excluding tax. Tax is not your money, and a margin computed on a tax-inclusive price is a different and much lower number than the one you think you are reading.
- One unit at a time. Volume discounts on your own costs, and fee tiers that change with turnover, are not modelled.
- The percentage fee is applied to the price excluding tax. Where your processor charges on the tax-inclusive amount, enter the price inclusive and switch the toggle.
- The break-even price is the price at which profit is exactly zero at the fee rate you entered. It is a boundary, not a recommendation.
Questions about this calculator
Short answers, and none of them hedge. If yours is not here, ask us on the contact page.
Why does my target margin need the fee rate in the denominator?
Because the fee is charged on the answer, not on the cost. Raise the price to cover the margin and the percentage fee rises with it, eating part of the raise. Putting the fee rate in the denominator solves for the price at which the margin and the fee are both satisfied at once, which is the only price that actually works.
What does it mean when the calculator says the margin cannot be reached?
It means the target margin and the fee rate together come to one hundred per cent or more. At that point every unit of the price is spoken for before the item itself is paid for, so no price is high enough. It is a real answer rather than an error, and in practice it is usually the sign that the fee rate entered is wrong by a factor of ten.
Should I enter the price with tax or without?
Either, as long as the toggle matches. If you enter a tax-inclusive price the calculator divides the tax back out before it does anything else, because every margin figure here is a share of the price excluding tax.
Is markup ever the right number to use?
Yes, when you are pricing up from cost, which is how most buying decisions are actually made. Margin is the right number when you are looking at a finished price and asking what is left of it. The mistake is not using markup. The mistake is quoting one and thinking about the other.
Where do I get the fee rate to put in?
From the payment fee calculator on this site, which prints your effective rate as a percentage of the order once the processor and the platform have both taken their share. Paste that figure in here and the two pages agree by construction.
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