Markup vs Margin: What's the Difference (and How to Calculate Each)
Markup and margin are two of the most confused terms in business, and the mix-up is expensive: price using the wrong one and you'll quietly undercharge on every sale. They both describe profit on a product, but they measure it against different numbers. Here's the difference, made clear.
The key distinction
Both start with the same gap — your selling price minus your cost — but they divide it differently:
- Markup is profit as a percentage of cost.
- Margin is profit as a percentage of the selling price.
Same profit, different denominator — which is exactly why the two percentages never match.
A worked example
You buy a product for $60 and sell it for $100. Your profit is $40.
Markup = 40 ÷ 60 × 100 = 66.7%
Margin = 40 ÷ 100 × 100 = 40%
Notice the same $40 profit is a 66.7% markup but only a 40% margin. If you meant to make a 40% margin but accidentally applied a 40% markup, you'd sell for $84 instead of $100 — and lose $16 of profit on every unit.
When to use which
Use markup when you're setting a price from a known cost ("add 50% to what I paid"). Use margin when you're analysing profitability ("what percentage of revenue do I keep?"). Retailers and accountants usually talk in margin because it ties directly to the bottom line; buyers and pricers often think in markup.
Converting between them
They're related, so you can convert. A 50% markup equals a 33.3% margin; a 100% markup equals a 50% margin. The higher the numbers climb, the wider the gap between the two — another reason to be sure which one a supplier or report means. Investopedia has a fuller breakdown if you want the accounting detail.
Calculate it without the headache
Our free margin calculator works out margin, markup, and profit from your cost and price, so you can price confidently and never confuse the two again.
Bottom line
Markup is profit over cost; margin is profit over price. They describe the same money against different bases, so they're never equal. Know which one you're using when you set a price — getting it wrong quietly erodes profit on every single sale.
