Pricing & profit
Markup vs Margin: What's the Difference?
Markup and margin describe the same profit from the same sale, but they divide it by different numbers. Markup compares profit with what the item cost you. Margin compares profit with what the customer paid. Because selling price is larger than cost whenever a sale is profitable, markup always reads higher than margin for the same sale.
Two formulas, one profit
Profit = Selling price − Cost Markup = Profit ÷ Cost × 100 Margin = Profit ÷ Selling price × 100
Both metrics start from the same dollar profit. The only thing that changes is the denominator — the base the profit is measured against.
| Markup | Margin | |
|---|---|---|
| Denominator | Cost | Selling price |
| Question it answers | How much did I add on top of cost? | What share of each sale is profit? |
| Typical starting point | You know the cost and want a price | You know the price and want to judge profitability |
| Can exceed 100%? | Yes (price more than double cost) | No, not for a positive cost |
Same sale, different percentages
An item costs $60 and sells for $100. Profit is $100 − $60 = $40.
Markup: $40 ÷ $60 × 100 = 66.67%. Margin: $40 ÷ $100 × 100 = 40.00%.
Nothing about the sale changed between those two lines. The $40 is simply being compared with a smaller number ($60) for markup and a larger number ($100) for margin. That is why a 40% margin is not the same as a 40% markup: a 40% markup on $60 would give a $84 price and only a 28.57% margin.
Converting between markup and margin
Margin = Markup ÷ (100 + Markup) × 100 Markup = Margin ÷ (100 − Margin) × 100
Because both come from the same profit, one can be converted into the other without knowing the dollar amounts.
| Markup | Resulting margin |
|---|---|
| 25% | 20.00% |
| 50% | 33.33% |
| 66.67% | 40.00% |
| 100% | 50.00% |
| 150% | 60.00% |
When markup is the more useful number
Markup is a pricing tool. If you buy or make something at a known cost and need a consistent rule for setting its price, markup expresses that rule directly: cost × (1 + markup ÷ 100) = selling price. A $40 cost with a 50% markup becomes a $60 price.
It is convenient for building price lists across many items with different costs, and for quick quoting where cost is the number in front of you.
When margin is the more useful number
Margin describes profitability at the selling-price level. It tells you how much of each dollar of revenue is left after the cost you included, which makes it easier to compare products, price points, or periods with very different revenue.
Margin also connects directly to revenue targets: at a 40% margin, every $1,000 of sales leaves $400 before whatever costs you left out of the calculation.
Common mistakes
- Using a target margin as a markup. Pricing a $60 item at 40% markup gives $84 and a 28.57% margin, not the 40% margin you wanted.
- Comparing one product's markup with another product's margin.
- Using different cost definitions for the same comparison — for example, product cost only for one item and product cost plus shipping for another.
- Treating a healthy margin as net profit. The margin only reflects the costs you included in "cost".
Edge cases
- Cost of $0: markup divides by cost, so the markup percentage is undefined and BizFormula shows it as N/A. It is not 100% and it is not infinite. Margin is still calculable and would be 100.00% for a positive price.
- Selling price of $0: margin divides by selling price, so it cannot be calculated meaningfully. BizFormula's calculators ask for a selling price above zero.
- Selling below cost: both percentages turn negative. A $100 cost sold at $80 is a −20.00% markup and a −25.00% margin.
Limitations
Both figures describe one sale or one product at one price. They do not capture volume, fixed costs, returns, discounts applied later, or taxes. To see how many sales you need to cover fixed costs, use break-even analysis; to look at a whole period, use gross profit and gross margin.