# Profit Margin vs Markup: The Ecommerce Formula Every Seller Gets Wrong

> Margin and markup are not the same number. Learn the formulas, see real examples, and calculate yours in seconds with a free calculator.

- **URL**: https://brytetools.com/post/profit-margin-vs-markup-ecommerce
- **Markdown summary**: https://brytetools.com/llms/posts/profit-margin-vs-markup-ecommerce.md
- **Meta description**: Profit margin vs markup explained with formulas and examples. Free profit margin calculator for ecommerce sellers and agencies.

## Article

You price a product at £40. It costs you £25 to make. Are you earning a 60% margin or a 37.5% margin?

Trick question — both answers appear in ecommerce forums every day because margin and markup use different denominators. Get this wrong and you underprice products, miss breakeven targets, or confuse clients on reporting calls.

## Profit margin formula (the one investors care about)

Profit margin % = (Selling price − Cost) ÷ Selling price × 100

Using our example:(£40 − £25) ÷ £40 × 100 = 37.5% margin

Margin tells you what percentage of revenue is profit. A 37.5% margin means 37.5p of every £1 sold is profit before other expenses.

## Markup formula (the one suppliers use)

Markup % = (Selling price − Cost) ÷ Cost × 100

Same example:(£40 − £25) ÷ £25 × 100 = 60% markup

Markup measures how much you add on top of cost. Suppliers and wholesalers think in markup. Investors and accountants think in margin.

## Quick reference table

CostPriceProfitMarginMarkup

£10£20£1050%100%

£25£40£1537.5%60%

£50£100£5050%100%

£8£12£433.3%50%

Notice: a 50% margin equals 100% markup. This is where most pricing mistakes happen.

## Which number should you use?

- Margin — when setting revenue targets, reporting to stakeholders, or comparing to industry benchmarks (e.g. "DTC brands aim for 40–60% gross margin").

- Markup — when a supplier quotes cost and you need to decide your shelf price quickly.

- Unit profit — when evaluating whether a low-margin product is worth the operational hassle.

## Calculate yours in seconds

Stop doing mental math. Use the free [BryteTools Profit Margin Calculator](https://brytetools.com/tools/profit-margin-calculator) — enter cost and selling price, get margin, markup, and profit per unit instantly.

It runs in your browser. No account. Useful when you are repricing a Shopify catalog or prepping a client proposal.

## Real ecommerce scenarios

### Scenario 1: The race-to-the-bottom SKU

Cost: £6. You sell at £9.99. Margin = 40%. Sounds healthy until you factor in £2.50 shipping and £1.20 payment fees. True margin drops to roughly 8%. Use unit profit to decide if the SKU stays in your catalog.

### Scenario 2: The premium reposition

Cost: £30. Currently priced at £45 (33% margin). Raising to £55 pushes margin to 45% — an extra £10 profit per unit with the same cost base. Small price moves have outsized margin impact at higher price points.

### Scenario 3: Agency client reporting

Your client asks "what margin are we running?" Make sure you report margin (revenue-based), not markup (cost-based). Mixing them up erodes trust on monthly calls.

## Margin targets by business type

- Digital products / SaaS: 70–90% gross margin

- DTC physical goods: 40–60% gross margin

- Wholesale / B2B: 15–30% gross margin

- Agency services: 50–70% gross margin (labour cost as COGS)

These are benchmarks, not rules. Your target depends on volume, acquisition cost, and retention.

## FAQ

What is a good profit margin for ecommerce?Most DTC brands target 40–60% gross margin on products. Net margin after ads, shipping, and overhead is typically 10–20% for healthy stores.

Can I use margin formulas for services?Yes. Treat your labour or delivery cost as "cost" and your client fee as "price." The same formulas apply.

Margin vs markup — which is higher?Markup is always higher than margin when both are positive. A 50% margin equals 100% markup.

How do I find my cost of goods?Include product cost, packaging, inbound shipping, and any per-unit fulfilment fees. Exclude marketing and overhead from gross margin calculations.

## Calculate your margin now

[Open the free Profit Margin Calculator →](https://brytetools.com/tools/profit-margin-calculator)

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