Markup vs Margin: The Difference, Formulas and Pricing Examples
Markup and margin both describe profit, but they are not the same number, and mixing them up is one of the most common pricing mistakes in business. A 50% markup is only a 33% margin. This guide explains the difference with simple formulas, a conversion chart and examples, so you can price products to earn the profit you actually planned. Use our free profit margin and markup calculator to check your numbers.
Definitions
- Profit = Selling price - Cost
- Markup % = Profit / Cost x 100 (profit compared with what you paid)
- Margin % = Profit / Selling price x 100 (profit compared with what you charge)
Example
An item costs 60 and sells for 100. Profit is 40. Markup is 40 / 60 = 66.67%. Margin is 40 / 100 = 40%. Same profit, different percentages, because the base is different.
Markup To Margin Chart
| Markup | Margin |
|---|---|
| 10% | 9.09% |
| 25% | 20% |
| 50% | 33.33% |
| 75% | 42.86% |
| 100% | 50% |
| 150% | 60% |
How To Price For A Target
- Target margin: Price = Cost / (1 - Margin). For a cost of 60 and a 40% margin, price = 60 / 0.6 = 100.
- Target markup: Price = Cost x (1 + Markup). For a cost of 60 and a 50% markup, price = 90.
The Classic Mistake
Many sellers want a 30% margin but add 30% to cost. A cost of 70 with a 30% markup sells for 91, which is only a 23% margin. To get a true 30% margin the price must be 70 / 0.7 = 100.
Discounts Hurt Margin Faster Than You Think
If an item costs 60 and sells for 100 (40% margin), a 20% discount brings the price to 80. Profit falls from 40 to 20 and margin falls to 25%. A 20% discount cuts profit in half, so check your numbers before running sales.
Which One Should You Use?
- Retailers often price using markup because it is simple to apply to cost.
- Accountants and investors usually talk about margin because it relates to revenue.
- Pick one, use it consistently and know how to convert between them.
Remember Other Costs
Cost should include materials, packaging, shipping, platform fees and your time. If you sell on marketplaces, add platform fees before calculating margin.
Frequently Asked Questions (FAQs)
What is the difference between margin and markup?
Markup is profit divided by cost. Margin is profit divided by selling price.
Is a 50% markup the same as a 50% margin?
No. A 50% markup equals a 33.33% margin. A 100% markup equals a 50% margin.
How do I calculate selling price from margin?
Price = Cost / (1 - Margin). For a 40% margin on a cost of 60, the price is 100.
Can margin be above 100%?
No. Margin cannot exceed 100%, but markup can.
What is a good profit margin?
It depends on the business. Many small retailers and online sellers aim for roughly 20% to 40% after all costs.
How do discounts affect margin?
They reduce it quickly. A 20% discount on an item with a 40% margin cuts the margin to 25%.