40% Margin to Markup: a 40% margin needs a 66.7% markup
If your target is a 40% margin, do not add 40% to cost. Add 66.7%. The difference between the two is the reason so many first price lists come in thinner than planned.
Price any cost at a 40% margin
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The formula
40 ÷ 60 × 100 = 66.7%
price = cost ÷ (1 − 40/100) = cost ÷ 0.6
The cost-to-price ratio at 40% margin is 0.6: cost is 60% of the price. Invert that and the price is cost × 1.6667, which is exactly a 66.7% markup. That ratio is the fastest way to price a whole list to one margin.
Price table at 40% margin
Each price is the cost divided by 0.6. The markup column stays at 66.7% on every line; only the amounts scale.
| Cost | Price at 40% margin | Gross profit | Markup |
|---|---|---|---|
| $5.00 | $8.33 | $3.33 | 66.7% |
| $10.00 | $16.67 | $6.67 | 66.7% |
| $25.00 | $41.67 | $16.67 | 66.7% |
| $50.00 | $83.33 | $33.33 | 66.7% |
| $100.00 | $166.67 | $66.67 | 66.7% |
| $250.00 | $416.67 | $166.67 | 66.7% |
| $500.00 | $833.33 | $333.33 | 66.7% |
| $1,000.00 | $1,666.67 | $666.67 | 66.7% |
| $2,500.00 | $4,166.67 | $1,666.67 | 66.7% |
| $10,000.00 | $16,666.67 | $6,666.67 | 66.7% |
Margins near 40%
Between 30% and 50% margin the markup needed runs from 42.9% to 100%: it climbs faster than the margin because the cost share of the price keeps shrinking. The multiplier column turns a cost list into prices at that margin in one step.
Worked example
Worked example. Cost $480.00, target margin 40%. Price = $480.00 ÷ (1 − 0.40) = $800.00. Profit = $800.00 − $480.00 = $320.00. Check: $320.00 ÷ $800.00 = 40% margin, and $320.00 ÷ $480.00 = 66.7% markup.
The margin-as-markup trap
Rounding hides the gap on small numbers and exposes it on large ones. On a $480.00 item the difference between a 40% markup and a 40% margin is $128.00 per unit; across a container of stock it is the whole profit.
When a margin target is the right tool
Set prices from a margin target when the business is judged on gross margin: an online store, a wholesaler with published margin bands, or any company preparing accounts for a lender. A 40% margin target converts to a 66.7% markup for the person entering prices.
For the mirror conversion, 66.7% markup back to margin, the answer is 40% again: 66.7 ÷ (100 + 66.7) = 40%. The two pages describe one price.
Mirror page: what margin a 40% markup produces.