Markup vs margin: the difference, and why it costs people money
Markup is profit as a share of cost. Margin is profit as a share of the selling price. The same sale always has a higher markup than margin, so a 50% markup is only a 33.33% margin. Mixing the two up underprices every sale. The profit margin calculator shows both figures side by side for any price.
The difference in one sentence
Markup compares profit with what you paid, and margin compares profit with what the customer paid. Both describe the same profit. They divide it by a different number, and because the selling price is larger than the cost whenever there is a profit, the margin always comes out smaller.
The two formulas side by side
Every amount in this guide is in USD. Take one product with a cost of USD 40.00 and a selling price of USD 60.00. The profit is USD 20.00 under both methods.
| Step | Markup | Margin |
|---|---|---|
| Formula | profit / cost x 100 | profit / price x 100 |
| Working | 20.00 / 40.00 x 100 | 20.00 / 60.00 x 100 |
| Result | 50.00% | 33.33% |
Markup is the figure a buyer or a reseller often thinks in, because it starts from the cost on a supplier's invoice. Margin is the figure an accountant or a lender often asks for, because it shows how much of revenue is left as profit. Neither is wrong. Trouble starts when someone uses one while thinking of the other.
Markup to margin conversion chart
The chart below converts markup to margin from 10% to 200%. Each margin comes from the formula in the next section, rounded to 2 decimal places. The last column shows the selling price that each markup gives on a cost of 100.00.
| Markup | Margin | Price on a cost of 100.00 |
|---|---|---|
| 10% | 9.09% | 110.00 |
| 20% | 16.67% | 120.00 |
| 25% | 20.00% | 125.00 |
| 30% | 23.08% | 130.00 |
| 40% | 28.57% | 140.00 |
| 50% | 33.33% | 150.00 |
| 60% | 37.50% | 160.00 |
| 70% | 41.18% | 170.00 |
| 75% | 42.86% | 175.00 |
| 80% | 44.44% | 180.00 |
| 90% | 47.37% | 190.00 |
| 100% | 50.00% | 200.00 |
| 125% | 55.56% | 225.00 |
| 150% | 60.00% | 250.00 |
| 175% | 63.64% | 275.00 |
| 200% | 66.67% | 300.00 |
A few rows are worth remembering. A 25% markup is a 20% margin. A 50% markup is a 33.33% margin. Doubling the cost, which is a 100% markup, gives a 50% margin. A 200% markup, three times the cost, still reaches only a 66.67% margin.
The two conversion formulas
- Margin % = markup / (100 + markup) x 100
- Markup % = margin / (100 minus margin) x 100
For example, a 40% markup gives 40 / 140 x 100, which is a 28.57% margin. Going the other way, a 40% margin gives 40 / 60 x 100, which is a 66.67% markup. Put that markup on a cost of USD 40.00 and the price is USD 66.67, the same price that a 40% margin gives.
Margin can never reach 100%, but markup has no upper limit. That is why a markup chart can run to 200% or more while the margin column creeps toward 100% and never gets there.
A reseller who confused markup with margin
Here is a made up example that shows how the mistake plays out. Sara resells phone cases online. Each case costs her USD 20.00 from a supplier. She wants to keep 30% of every sale as gross profit, so she adds 30% to her cost and lists each case at USD 26.00.
That 30% is a markup, not a margin. Her profit per case is 26.00 minus 20.00, which is USD 6.00, and 6.00 / 26.00 x 100 is a margin of 23.08%. To reach a true 30% margin, the price needed to be 20.00 / 0.70, which is USD 28.57, for a profit of USD 8.57 a case.
| Per 1,000 cases | Priced at 30% markup | Priced at 30% margin |
|---|---|---|
| Selling price per case | USD 26.00 | USD 28.57 |
| Revenue | USD 26,000.00 | USD 28,570.00 |
| Cost | USD 20,000.00 | USD 20,000.00 |
| Gross profit | USD 6,000.00 | USD 8,570.00 |
| Margin | 23.08% | 30.00% |
The gap is USD 2.57 a case, or USD 2,570.00 for every 1,000 cases sold. Each sale still showed a profit, so nothing looked wrong day to day. The shortfall only appeared when she compared her gross profit with her plan.
How Sara fixed her prices
The fix has 2 parts. First, she chose margin as the figure her business plans around and wrote it down. Second, she converted it to a markup before setting any price. For a 30% margin, the markup is 30 / 70 x 100, which is 42.86%. Adding 42.86% to USD 20.00 gives the same USD 28.57.
A higher price may change how many cases she sells. That is a separate question that the margin figure cannot answer on its own.
Markup and margin when quoting a job
Service businesses meet the same problem when they quote. A contractor who adds 20% to the cost of materials and labor is applying a markup and earns a 16.67% margin on the job. If the business plans around a 20% margin, the quote needs a 25% markup instead. The quote and estimate maker takes final line prices, so the conversion happens first and the prices go in afterwards.
Markup and margin questions
What margin does a 50% markup give? A 33.33% margin. The working is 50 / 150 x 100.
Why is margin always lower than markup? Both divide the same profit. Margin divides it by the price, and markup divides it by the cost. The price is the cost plus the profit, so it is the larger number whenever there is a profit.
Which one do businesses use? Both. Retailers and wholesalers often talk in markup, while financial reports, lenders, and investors tend to use margin. Many businesses track both, which is why the calculator shows them together.