Markup vs Margin

Markup and margin use the same numbers but a different denominator. Mixing them up can quietly shrink your profit.

The difference, in one line

Markup is profit as a percentage of cost.
Margin is profit as a percentage of selling price.

Simple formulas

Markup (%) = (Profit ÷ Cost) × 100
Margin (%) = (Profit ÷ Selling Price) × 100

Practical example

You buy a product for $50 and sell it for $75. Profit per unit is $25.

Markup = $25 ÷ $50 = 50%
Margin = $25 ÷ $75 = 33.3%

Same product, same dollars — two very different percentages.

Why this matters

If a supplier says "we add a 40% margin" but actually adds 40% markup, the resulting price will be lower than you think. If you assume a 50% margin when you really set a 50% markup, your real margin is only 33%.

Quick conversion

25% markup ≈ 20% margin
50% markup ≈ 33% margin
100% markup = 50% margin

Common mistakes

Using the words interchangeably. Be explicit which one you mean, especially with suppliers and staff.
Pricing by markup but reporting by margin. Your margin will always be lower than your markup — don't let that surprise you at year end.

For setting prices from scratch, see How to Calculate Selling Price.

Need to calculate this? Visit SME Finance Helper.