pricing

Whats the difference between markup and profit margins?

Markups and profits are often confused concepts - knowing when to use each can be a big advantage when setting your handmade product prices. We show you how to calculate both.

Many handmade sellers often use the terms markup and profit interchangably, however they do have different meanings and are calculated differently.

Markup is essentially the amount added to your production cost price to arrive at a price. It is a commonly used technique to add a consistent profit margin to your product prices.

For more details on how to calculate markups on your products, see our article here: How to calculate pricing markups for your handmade products »

Your profit margin is a metric that determines how much revenue you are bringing in for your product relative to its cost to produce. Profit margin is usually calculated as a percentage so that it can be easily compared across your entire product range.

To calculate your profit margin, you’ll start with the selling price of the product (Price). From here, subtract the cost to produce the product. The resulting amount is your gross profit. Now, divide the gross profit by your price to get the gross profit margin.

The formula to use to calculate your profit margin is as follows:

To show the difference between profit margins and markups, the following table shows some examples:

Base Cost Markup Price Profit Margin
$29 0% 0 0
$29 50% $43.50 42.83%
$29 100% $58.00 57.5%
$29 150% $72.50 72.1%
$29 200% $87.00 86.6%

As you can see, as you add a bigger markup to your product your profit margin also increases - however they do so at a completely different rate.

Nicole Pascoe Nicole Pascoe - Profile

Written by Nicole Pascoe

Nicole is the co-founder of Craftybase, an inventory and bookkeeping software product designed specifically for handmade sellers. She has been working with, and writing articles for, Etsy sellers for the last 12 years. Her passion is to help handmade sellers to become more successful with their online endeavors by empowering them with the knowledge they need to take their business to the next level.

Want to learn how to price your handmade products?

Pricing strategy is often one of the hardest parts of running a craft business - once you have made your product, how do you know what to charge for it? Our eBook introduces online craft sellers to the theories around pricing, in an easy to understand way: giving you the knowledge and confidence to begin planning your strategy.

Pricing strategies for handmade sellers including Etsy eBook cover