Markup and margin use the same dollars of profit, but they divide by different numbers. Mixing them up is one of the most common pricing mistakes in small business. It can quietly leave you earning far less than you planned.
Side by side
| Markup | Margin | |
|---|---|---|
| Formula | (price − cost) ÷ cost | (price − cost) ÷ price |
| Answers | "How much did I add on top of cost?" | "How much of each sale do I keep?" |
| Used for | Setting a price from cost | Judging profitability |
| Can it exceed 100%? | Yes | No |
One example, two percentages
A wholesaler sells you a lamp for $50. You sell it for $75. Profit is $25.
- Markup: $25 ÷ $50 = 50%
- Margin: $25 ÷ $75 = 33.3%
Same lamp, same $25. The markup is always the larger number because cost is always smaller than price when you're making a profit.
Set a price from markup or from a target margin.
Open the Markup CalculatorWhy the mix-up costs money
Say you want a 40% margin to cover overhead and profit. If you apply a 40% markup instead:
| Cost | Price | Actual margin | |
|---|---|---|---|
| 40% markup | $50 | $70 | 28.6% |
| 40% margin | $50 | $83.33 | 40% |
The markup approach leaves $13.33 per item on the table. Across 1,000 items a year, that's $13,333.
Converting between them
Margin = markup ÷ (1 + markup)
Markup = margin ÷ (1 − margin)
Use decimals: 50% is 0.50.
| Markup | Equals margin of |
|---|---|
| 25% | 20% |
| 33.3% | 25% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
| 150% | 60% |
| 200% | 66.7% |
A 100% markup, doubling the cost, is often called "keystone" pricing in retail. It produces a 50% margin.
Which one should you use?
Use whichever fits the job, but be clear about which one you mean:
- Setting prices from a supplier cost? Markup is quick: cost × (1 + markup).
- Planning profitability or comparing products? Use margin. It ties directly to your revenue and to your income statement.
- Talking with a partner, buyer, or lender? Say the word: "a 40% margin," not just "40%."
Quick checks
- If someone quotes a markup over 100%, that's fine. A margin over 100% is impossible.
- If you lower a price by a percentage, recalculate margin from the new price. It drops faster than you might expect.
- If your costs rise and you keep the same markup percentage, your margin percentage stays the same, but you need to update every price.