Markup vs margin for bakers
Both describe the same profit. Markup divides it by your cost, margin divides it by your price. A cookie that costs $1.00 and sells for $1.50 has a 50% markup and a 33.3% margin. Mixing the two up is an easy way to end up with less profit than you planned.
The two formulas
- Markup = (price − cost) ÷ cost. To price from it: price = cost × (1 + markup).
- Margin = (price − cost) ÷ price. To price from it: price = cost ÷ (1 − margin).
Converting: markup = margin ÷ (1 − margin), and margin = markup ÷ (1 + markup). A margin can never reach 100%, because that would mean the item cost nothing. A markup has no ceiling.
Conversion table
The multiplier is what you multiply your cost by to get the price. "Charge three times your cost" is a 66.7% margin, or a 200% markup.
| Margin | Markup | Price = cost × | Item costing $1.00 sells for |
|---|---|---|---|
| 20% | 25% | 1.25 | $1.25 |
| 25% | 33.3% | 1.33 | $1.33 |
| 30% | 42.9% | 1.43 | $1.43 |
| 33.3% | 50% | 1.50 | $1.50 |
| 40% | 66.7% | 1.67 | $1.67 |
| 50% | 100% | 2.00 | $2.00 |
| 60% | 150% | 2.50 | $2.50 |
| 66.7% | 200% | 3.00 | $3.00 |
| 75% | 300% | 4.00 | $4.00 |
Where it goes wrong: a cookie example
The cookie batch on this site costs $0.73 per cookie with ingredients, a bag, 45 minutes of work at an example $15 an hour and 10% overhead. Say you want to keep 40% of every sale.
Adding 40% to the cost gives $1.02. That is a 40% markup, and its margin is only 28.6%. Dividing by 0.6 instead gives $1.21, the price that keeps 40%. On a 36-cookie batch the gap is $6.84.
Either number works for planning as long as the formula matches it. The calculator takes a margin and prints the matching markup next to the price, so you can check both.
Which one to use
Margin is easier to reason about when you look back at a market day: a 40% margin on $300 of sales means $120 stayed with you after costs. Markup is quicker at the oven with a pencil: cost times 1.5. Pick one, write it on your cost sheet, and use the matching formula every time.
Either only works on a full cost. A margin on ingredients alone leaves out your time and packaging, which in the cookie example are more than half the cost per item. The sourdough example shows a case where flour is about a tenth of the cost.
One big item shows the gap in dollars: the pumpkin pie page prices a 9 inch pie at a 40% margin and at a 40% markup.