Markup vs Margin: What's the Difference?

Markup and margin both describe the gap between what something costs you and what you sell it for, but they measure that gap against different numbers. Mixing them up is one of the most common and expensive mistakes in small business pricing. Here is the difference, in plain terms.

What markup means

Markup is the profit measured against your cost. If an item costs you 80 and you sell it for 100, the 20 profit is 25% of the 80 cost, so the markup is 25%.

Markup = (price - cost) / cost x 100

What margin means

Margin is the same profit measured against your selling price. That same 20 profit is 20% of the 100 price, so the margin is 20%.

Margin = (price - cost) / price x 100

The key difference in one example

Cost 80, price 100, profit 20. The profit never changes, but:

• Against cost (80), it is a 25% markup.
• Against price (100), it is a 20% margin.

Margin is always the smaller number, because the price is always bigger than the cost. This is exactly why the two get confused: a shop owner who wants a 30% margin but sets a 30% markup ends up with less profit than they planned.

How to convert between them

You can move between the two without knowing the actual prices:

• Margin from markup: margin = markup / (1 + markup)
• Markup from margin: markup = margin / (1 - margin)

For example, a 25% markup is 0.25 / 1.25 = 0.20, or a 20% margin, which matches our example above.

Which should you use?

Use markup when you price up from a known cost, which is how most retail and trade pricing works day to day. Use margin when you report profitability, because investors and accountants think in margins. The safest habit is to state which one you mean every time.

Work it out instantly

Skip the arithmetic with our tools: the Profit Margin Calculator gives margin, profit and markup together, and the Markup Calculator turns a cost and markup into a selling price.