Markup vs margin: how to price drinks and pastries for profit
The difference between markup and margin, a conversion table, and a simple formula to price any item from a target margin, with VAT done correctly.
By the Payspace team · · 4 min read
“I add 60% to my cost” and “I make 60% on everything” sound like the same thing. They’re not, and mixing them up is one of the most common reasons small shops earn less than they think.
Markup and margin in one minute
- Markup is profit as a share of cost: profit ÷ cost.
- Margin is profit as a share of the price: profit ÷ price.
A pastry that costs ₱40 and sells for ₱100 makes ₱60. That’s a 150% markup (60 ÷ 40) and a 60% margin (60 ÷ 100). Same pastry, same profit, two very different-looking numbers.
The trap: adding a percentage to cost
If that ₱40 pastry is priced by “adding 60%”, it sells for ₱64. The profit is ₱24, which is a 37.5% margin, not 60%. Rent, wages and electricity are paid out of margin, so the difference matters.
Margin to markup conversion table
| If you want this margin | you need this markup |
|---|---|
| 25% | 33.3% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% |
| 60% | 150% |
| 65% | 185.7% |
| 70% | 233.3% |
| 75% | 300% |
The formulas: markup = margin ÷ (1 − margin), and margin = markup ÷ (1 + markup).
How to set a price from a target margin
Start from the margin you want and work backwards: price = cost ÷ (1 − target margin).
Say a latte costs ₱47.10 to make (see how we got that) and you want a 65% margin:
- ₱47.10 ÷ (1 − 0.65) = ₱47.10 ÷ 0.35 = ₱134.57 before VAT.
- If your prices include 12% VAT, multiply by 1.12: ₱134.57 × 1.12 = ₱150.72.
- Round to a menu price. At ₱150 the margin is 64.8%; at ₱155 it’s 66.0%.
What margin should you target?
It depends on what you sell. Made-to-order drinks and baked goods usually carry higher margins, because the price also pays for the time and skill to make them. Resold packaged goods, like the stock in a sari-sari store or a grocery, usually carry much thinner margins and make up for it in volume. Pick a target for each kind of product, then check which items fall short.
A quick pricing checklist
- Cost every item from its ingredients, including packaging.
- Set a target margin, not a markup.
- Price = cost ÷ (1 − margin), then add VAT if you charge it.
- Round to a clean menu price, and check the margin you ended up with.
- Re-check whenever a supplier raises prices.
Frequently asked questions
What is the difference between markup and margin?
Markup is profit divided by cost; margin is profit divided by price. An item that costs ₱40 and sells for ₱100 has a 150% markup and a 60% margin.
How do I compute a selling price from a target margin?
Divide the cost by (1 − target margin). For a ₱47.10 cost and a 65% margin: 47.10 ÷ 0.35 = ₱134.57. If your prices include 12% VAT, multiply by 1.12 afterwards.