Ask ten small sellers what their margin is and several will tell you their markup. The two words get used interchangeably, but they are different numbers, and mixing them up leads to prices that are 10 to 20 percent lower than you intended. If you have ever "priced for 40%" and then wondered where the money went at year end, this is probably why.
The difference takes two minutes to understand. The payoff lasts as long as you run your shop.
The two definitions
Both start with the same figure: profit = selling price − cost. They differ only in what you divide that profit by.
Markup is profit as a percentage of cost
Markup % = (price − cost) ÷ cost × 100
Markup answers the question "how much did I add on top of what I paid?" It is the natural way to think when you are standing at the workbench with a receipt for materials in your hand.
Margin is profit as a percentage of price
Margin % = (price − cost) ÷ price × 100
Margin answers "out of every dollar the customer pays, how much do I keep?" It is the number accountants, lenders and marketplaces use, and it is the one that matters when fees and ad costs are also taken as a percentage of the price.
Worked example: a $20 cost, a $50 price
You make a leather wallet for $20 in materials and labor and sell it for $50. Profit is $50 − $20 = $30.
- Markup = $30 ÷ $20 = 1.50 = 150%
- Margin = $30 ÷ $50 = 0.60 = 60%
Same wallet, same $30 profit, and one number is two and a half times the other. Neither is wrong. They just describe the profit from different ends.
Notice a rule that always holds: for any profitable sale, markup is always larger than margin, because you are dividing the same profit by a smaller number (cost is less than price). Margin can never exceed 100%; markup can be 500% or 1,000% on cheap-to-make, high-value items like digital files.
The mistake: using a margin target as a markup
Here is where it costs real money. Suppose you decide your wallet business needs a 40% margin to pay for fees, ads, slow months and your own wage. A seller who confuses the terms will take the $20 cost and add 40%:
$20 × 1.40 = $28.00
But the margin on that sale is ($28 − $20) ÷ $28 = $8 ÷ $28 = 28.6%, not 40%. More than a quarter of the intended profit is missing.
To actually earn a 40% margin, divide instead of multiply:
Price = cost ÷ (1 − margin) = $20 ÷ (1 − 0.40) = $20 ÷ 0.60 = $33.33
Check: ($33.33 − $20) ÷ $33.33 = $13.33 ÷ $33.33 = 40.0%. The gap between $28.00 and $33.33 is $5.33 on every wallet. Sell 300 a year and that is about $1,600 you meant to earn and did not.
Converting between the two
You only need two formulas, and each is the other turned inside out:
- Margin = markup ÷ (1 + markup). For the wallet: 1.50 ÷ 2.50 = 0.60, so 60%.
- Markup = margin ÷ (1 − margin). For the wallet: 0.60 ÷ 0.40 = 1.50, so 150%.
A few landmarks worth memorizing:
| Markup | Equivalent margin | Example at $20 cost |
|---|---|---|
| 25% | 20.0% | $25.00 price, $5.00 profit |
| 50% | 33.3% | $30.00 price, $10.00 profit |
| 100% | 50.0% | $40.00 price, $20.00 profit |
| 150% | 60.0% | $50.00 price, $30.00 profit |
| 200% | 66.7% | $60.00 price, $40.00 profit |
| 300% | 75.0% | $80.00 price, $60.00 profit |
The classic retail "keystone" pricing, doubling your cost, is a 100% markup and a 50% margin. Many craft sellers hear "double your cost" and assume they are keeping half, which is true, until fees come in.
Our markup calculator takes a cost and a markup and shows the price, the profit and the margin it produces; the profit margin calculator works from price and cost, or from a margin target, so you can go in either direction.
Why margin is the one that matters on Etsy
Marketplace fees are charged as a percentage of the selling price, not of your cost. Etsy's 6.5% transaction fee, its 3% + $0.25 payment processing fee and any 12% or 15% Offsite Ads fee are all taken from the price. That means they can only be compared with your profit if your profit is also expressed against the price, which is margin.
Take the $50 wallet again. Etsy's standard fees on a US sale with free shipping are: 6.5% × $50 = $3.25; 3% × $50 = $1.50 plus $0.25; and a $0.20 listing fee. Total: $5.20. Your profit falls from $30.00 to $24.80.
- Margin after fees: $24.80 ÷ $50 = 49.6%
- Markup after fees: $24.80 ÷ $20 = 124%
Said in margin terms, the fees cost you 10.4 points (60% down to 49.6%), which maps cleanly onto the roughly 10.4% of revenue Etsy took ($5.20 ÷ $50). Said in markup terms, you went from 150% to 124%, a drop of 26 points that has no obvious connection to any fee rate. Margin keeps the arithmetic honest.
The same logic applies to ads. A Facebook campaign that costs 20% of revenue is affordable at a 50% margin and ruinous at a 15% margin; a markup figure tells you nothing until you convert it. See our guide to break-even ROAS for that calculation.
Which should you use day to day?
Use markup when you are quoting from cost and want a quick price: "cost times 2.5." It is fast and good enough for a first draft.
Use margin for every decision that involves a percentage of revenue: fees, ad budgets, wholesale discounts, sales and coupons. If a wholesale buyer asks for 50% off retail, that halves your price; whether you survive it depends entirely on your margin, not your markup.
Whichever you start with, write both on your cost sheet. It takes one extra line and removes the most common pricing error in small-business bookkeeping.
FAQ
Is a 50% margin the same as a 50% markup?
No. A 50% markup on a $20 cost gives a $30 price and a 33.3% margin. A 50% margin on the same cost needs a $40 price, which is a 100% markup.
Can margin be higher than 100%?
Not on a real sale, because profit can never be larger than the price itself. Markup has no upper limit; a $2 digital file that cost $0.10 to produce has a 1,900% markup and a 95% margin.
Do I calculate margin before or after Etsy fees?
Both are useful, but label them. "Gross margin" usually means before fees and ads; "net margin" or "margin after fees" is what you actually keep. Price decisions should rest on the after-fees number. The Etsy fee calculator reports margin after fees for any price.
What is a good margin for handmade products?
It depends on your category, volume and ad spend, so be wary of any single "right" percentage. The useful question is whether your margin after fees leaves enough to cover ads, discounts, returns and your own wage with something left over. Work that out from your own numbers rather than a benchmark.
Last reviewed: November 2026 · By Muhammad Shujah Uddin Qazi · Fees change; always check the platform's official fee page.