20% Markup to Margin: a 20% markup is a 16.7% margin
A 20% markup on cost is a 16.7% gross margin on the selling price. The two numbers describe the same sale from different ends: markup looks up from what you paid, margin looks down from what you charged.
Check any cost at 20% markup
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The formula
20 ÷ 120 × 100 = 16.7%
The reason 20% turns into 16.7% is the denominator. Profit stays the same, $7.50 on a $37.50 item, but markup measures it against the $37.50 you paid while margin measures it against the $45.00 the customer paid. A bigger denominator makes a smaller percentage.
Price table at 20% markup
Every row adds 20% to the cost. The margin column is the same on every line, 16.7%, because margin depends only on the percentage, not on the amount.
| Cost | Price at 20% markup | Gross profit | Margin |
|---|---|---|---|
| $5.00 | $6.00 | $1.00 | 16.7% |
| $10.00 | $12.00 | $2.00 | 16.7% |
| $25.00 | $30.00 | $5.00 | 16.7% |
| $50.00 | $60.00 | $10.00 | 16.7% |
| $100.00 | $120.00 | $20.00 | 16.7% |
| $250.00 | $300.00 | $50.00 | 16.7% |
| $500.00 | $600.00 | $100.00 | 16.7% |
| $1,000.00 | $1,200.00 | $200.00 | 16.7% |
| $2,500.00 | $3,000.00 | $500.00 | 16.7% |
| $10,000.00 | $12,000.00 | $2,000.00 | 16.7% |
Markups near 20%
From 10% to 30% markup the margin moves from 9.1% to 23.1%: each two-point step in markup is worth less than two points of margin at this level, and the gap widens as the markup grows. The multiplier column is what you type into a spreadsheet to price a cost list.
Worked example
Take a $37.50 item. At 20% markup the ticket price is $45.00, which leaves $7.50 after paying for the item. That $7.50 is 20% of what you paid but 16.7% of what you charged, and only the second number tells you how much of the sale is yours to spend on overheads.
Why the two percentages differ
Spreadsheets make this worse, not better. A column labelled "margin" that actually divides profit by cost will report 20% on every line, while the real margin sits at 16.7%. Multiply that by a year of sales and the profit forecast is out by the same 3.3 points.
When to use markup, when to use margin
A 20% markup is typical for categories where the seller adds little beyond stocking and handling: it leaves 16.7% of each sale to cover overheads. Categories with high service content usually need a higher markup to reach a margin that pays for the time involved.
If what you actually want is a 20% margin, the markup has to be 25%, not 20%. On a $37.50 cost that means a price of $46.88 instead of $45.00.
See the mirror page: what markup gives a 20% margin.