ProfitPeek
Margin vs markup: what's the difference?
They measure the same dollars of profit against two different bases. Mix them up and you will underprice. The calculator below accepts any two of cost, price, margin, or markup and fills in the rest.
The two formulas
Margin % = (Price − Cost) ÷ Price × 100 Markup % = (Price − Cost) ÷ Cost × 100
The only difference is the denominator: selling price for margin, cost for markup.
Worked example: $40 cost, $50 price
- Profit: $50 − $40 = $10
- Margin: $10 ÷ $50 = 20%
- Markup: $10 ÷ $40 = 25%
Same $10, two percentages. This is the usual textbook pair: a 25% markup produces a 20% margin.
Another example: $60 cost, $100 price
- Profit: $40
- Margin: $40 ÷ $100 = 40%
- Markup: $40 ÷ $60 = 66.67%
Type 60 and 100 in the calculator to see the same result, or type 60 and a 40% margin to get the $100 price.
The expensive mistake
You want a 50% margin. If you mark a $50 cost up by 50%, the price is $75. The margin on that sale is $25 ÷ $75 = 33.33%, not 50%. To actually leave a 50% margin, the price must be $50 ÷ (1 − 0.50) = $100, which is a 100% markup (you doubled the cost).
See the markup percentage formula, how to calculate profit margin, and a full conversion chart.
Questions people ask
What is the difference between margin and markup?
Both start with the same profit (price minus cost). Margin divides that profit by the selling price. Markup divides it by the cost. For a $40 cost and $50 price, margin is 20% and markup is 25%.
Is margin always lower than markup?
Yes, for the same sale, because the selling price is larger than the cost. A 25% markup is a 20% margin; a 100% markup is a 50% margin.
How do I convert markup to margin?
Margin = Markup ÷ (1 + Markup). Use decimals: a 50% markup is 0.50 ÷ 1.50 = 0.333, or 33.33% margin. The reverse is Markup = Margin ÷ (1 − Margin).
Should I use margin or markup to set prices?
Markup is handy when you start from cost and add a percentage. Margin is what shows up in financial reporting (profit as a share of sales). If you want a 40% margin, do not add 40% to cost — that is a 40% markup, which is only a 28.57% margin.