Profit margin vs markup
Margin and markup both describe profit as a percentage, but they divide by different numbers. Mixing them up is one of the most common pricing mistakes, and it gets worse when marketplace fees take a cut of the sale.
Definitions
- Margin is profit divided by what the customer pays. A 30% margin means you keep 30 cents of every dollar received.
- Markup is profit divided by your cost. A 30% markup means you charge 30% more than you paid.
The same sale has a smaller margin than markup. An item that costs $10 and sells for $13 has a markup of 30% and a margin of 23.1%.
| Markup | Margin |
|---|---|
| 25% | 20.0% |
| 50% | 33.3% |
| 100% | 50.0% |
| 150% | 60.0% |
| 200% | 66.7% |
The conversion is margin = markup ÷ (1 + markup).
Why fees change the picture
On a marketplace, part of the customer's payment goes to the platform before you see it. Your real profit is what is left after fees and costs, so margin should be measured on the full payment. A shop that sets a 50% markup and then pays 12% in fees ends up with a much smaller margin than it expects.
Pricing from a target margin
Work with the total the customer pays, T. Percentage fees take a share of T, and fixed fees and your costs are fixed amounts. The target margin is the share you want to keep:
T = (your costs + fixed fees) ÷ (1 − percentage fees − target margin)
Here is an Etsy example for a US seller. Your costs are $15 (item $9, packaging $0.80, shipping label $5.20). Fixed fees are $0.45 ($0.20 listing plus $0.25 processing). Percentage fees are 9.5% (6.5% transaction plus 3% processing). You want a 30% margin.
T = (15 + 0.45) ÷ (1 − 0.095 − 0.30) = $25.54.
If the customer pays $25.54 in total, Etsy takes $2.88 in fees and you keep $7.66, which is 30.0% of the payment. The calculator's Set your price box does this solving for you on every platform, including tiers and per-order fees that make the algebra messier.
Common mistakes
- Adding fees to your cost instead of treating the percentage part as a share of the price.
- Forgetting that shipping charged to the buyer is part of the payment and part of the fee base.
- Ignoring returns and ad spend. Add them as other costs or advertising costs.
- Comparing a competitor's markup with your own margin.
Run your own numbers in the calculator. Pick Payout after fees to see what you receive, or Full profit to include product cost and shipping.
More guides
- Etsy fees explained
Listing, transaction and processing fees, Offsite Ads, and what a sale really leaves you.
- eBay seller fees explained
Final value fee, the per-order fee, taxes, shoes and watches, and Store discounts.
- Amazon seller fees explained
Referral fees, plans, FBA fulfillment, the 2026 fuel surcharge and refund fees.