Margin vs Markup Calculator

The same sale, two percentages

A dress costs $18 wholesale with $2 of inbound freight allocated to the unit, so the landed cost is $20. You sell it at $50.

The profit dollars are the same $30 in both lines. The percentages differ because markup divides that profit by the $20 cost while margin divides it by the $50 selling price. That single difference is what makes the two numbers impossible to swap.

This is why a 50% markup and a 50% margin are two very different prices. The strategy side of pricing, including price points and where the multiple should land for your category, is in how to price boutique clothing.

Margin, markup and gross profit side by side

How to convert markup to margin

Divide the markup by one plus the markup, working in decimals rather than percentages.

How to convert margin to markup

Go the other way by dividing the margin by one minus the margin.

Margin has to stay below 100% for the second formula to work, because a 100% margin would mean the product cost you nothing. The converter above does both directions for you, and adds the selling price when you have entered a cost.

Why doubling cost is not a 100% margin

Take a $20 landed cost and price it at $40. The $20 of gross profit is 100% of the cost, so that is a 100% markup. The same $20 is only half of the $40 the customer pays, so the gross margin is 50%, before any per-sale costs such as packaging or payment fees.

Doubling cost is often called keystone pricing. Treat it as a common starting point that some retailers use, not as a rule that fits every category, price point or cost structure. To see how keystone stacks up against cost-plus, target margin, competitor and value-based pricing, read retail pricing methods explained.

Margin and markup are two of the formulas in the wider retail math formulas reference.

What a markdown does to both numbers

Put that $50 dress into an end-of-season sale at 20% off. The customer pays $40, the $20 landed cost does not move, and gross profit falls to $20. The margin drops from 60% to 50% and the markup drops from 150% to 100%.

The discount comes entirely out of profit, which is why a small-looking markdown lands harder on the bank statement than it looks on the tag. Plan a full sale event in the Boutique Markdown Calculator. These are illustrative numbers, not a recommended price for your products.

Use landed cost, not the wholesale price

The invoice price is only part of what an item costs you. Inbound freight, duties where applicable, and other direct acquisition costs all land on the same unit before it ever reaches a customer. Price off the wholesale figure alone and every margin on your spreadsheet is flattering — often by several points, and by more on heavy or imported goods.

Work out the per-unit figure in the Boutique Landed Cost Calculator and bring that number back here. Wholesale landed cost walks through what belongs in the calculation. One caution: freight that's already inside your landed cost should not be entered again as customer shipping.

Two vendors, one retail price

Say you plan to sell a top at $48 either way. Vendor A lands the unit at $16. Vendor B quotes a lower unit price but ships heavy, so the same top lands at $22.

Same product, same tag, $6 of gross profit per unit apart. Over a 120-unit order that is $720 of profit decided at the buy rather than at the price tag, which is why vendor cost belongs in the decision before you commit. The buying process is in how to buy wholesale for a boutique. These figures are illustrative.

Gross margin isn't net profit

This calculator answers a product-level question: does this item, at this price, earn enough to be worth carrying? What it can't tell you is whether the business is profitable. Rent, payroll, software subscriptions, general marketing, professional fees and taxes are paid out of the pooled gross profit of everything you sell, and none of them appear here unless you deliberately enter a cost per sale.

To connect the two, take your average margin into the Break-Even Calculator and then into the Sales Goal Calculator. Margin sets the rate; those tools tell you the volume.

What is a good margin?

There isn't one number that fits every boutique. What counts as a workable margin depends on your category and price points, your operating costs, how often you discount, what you pay to acquire a customer, your return rate, and the channel you sell through — a wholesale-sourced boutique, a dropship storefront and a handmade line don't compare directly. Judge your own margin against your own costs and how much of your assortment actually sells at full price. The reasoning behind setting prices is in how to price boutique clothing.

Four pricing mistakes worth avoiding

• Confusing markup with margin. Marking a $25 cost up 50% gives $37.50 and a 33% margin — not the 50% you had in mind.
• Pricing off wholesale instead of landed cost. Freight and duties are real money and they belong in the cost side before you set a price.
• Forgetting per-sale costs. Packaging, payment processing and absorbed shipping quietly take points off every order.
• Setting the price before you think about discounting. If a style will be marked down at the end of the season, the opening price has to carry that.

Buying next season's inventory? Size the order in the Inventory Buy Planner, and if you're still at the start, how much inventory to start a boutique covers how much to commit.

Where this fits in your numbers

1. 1
   Calculate landed cost

   What a unit really costs after freight and duties.

2. 2
   Calculate marginYou are here

   You're here — profit, margin and markup per product.

3. 3
   Test markdown impactYour next step

   What a sale does to the margin you just calculated.

4. 4
   Calculate break-even

   The revenue that margin has to produce to cover fixed costs.

5. 5
   Set a sales goal

   Turn that number into orders and weekly actions.

If the margins keep coming out thinner than they should across the whole assortment rather than on one style, the cause is usually sourcing, product mix or discounting habits. A Boutique Store Audit looks at those together.