Profitability
The same profit on a cost base
Markup divides the same profit by cost instead of revenue. The second half converts a markup back into the margin it actually delivers.
The Formula
u = (R - C) / C, and m = u / (1 + u)
Markup divides the same profit by cost instead of revenue. The second half converts a markup back into the margin it actually delivers.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| u | Markup on cost | ratio | Unbounded above. A markup of 1.00 is a doubling of cost and yields a 50% margin. |
| C | Cost of what was sold | currency | The base here, so the same profit always reads larger as markup than as margin. |
| R | Revenue | currency | Equal to cost plus the marked-up amount when pricing forward from cost. |
What Each Symbol Means
uratio
Markup on cost
Unbounded above. A markup of 1.00 is a doubling of cost and yields a 50% margin.
Ccurrency
Cost of what was sold
The base here, so the same profit always reads larger as markup than as margin.
Rcurrency
Revenue
Equal to cost plus the marked-up amount when pricing forward from cost.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate profit margin page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Profit Margin, filed under Business. Every number the guide produces comes from substituting into this one line.