Markup vs Margin: What Is the Difference? Formulas and Examples

The short answer

Both numbers answer the same question: how much of a sale is profit? They just measure it against different things. Markup compares the profit with what the item cost you. Margin compares the profit with what the customer paid.

That small difference is behind a very common pricing error. Someone aims for a 40% margin, adds 40% to the cost, and ends up with a margin well under 40%.

Two formulas, two denominators

Here are the two definitions as formulas.

• Markup % = (price – cost) / cost x 100
• Margin % = (price – cost) / price x 100

The top of each fraction is the same: profit, which is price minus cost. Only the bottom changes. Since the price is bigger than the cost whenever you make a profit, dividing by the price gives a smaller percentage. That is why margin always comes out below markup.

Think of it this way. If you buy something for 50 and sell it for 70, you earned 20. Compared with the 50 you spent, that is 40%. Compared with the 70 you took in, it is 28.57%. Same 20, different yardstick.

Working out a price from a percentage

Often you start with a target and need the selling price. The formula depends on which target you have.

• From a markup: price = cost x (1 + markup / 100)
• From a margin: price = cost / (1 – margin / 100)

The second one trips people up. You cannot just multiply the cost by 1.40 to get a 40% margin. A margin target means the cost must be only 60% of the price, so the price is the cost divided by 0.60.

A margin of 100% is impossible, because it would mean the item cost nothing. The formula breaks at that point, since it would divide by zero. Our calculator shows an error if you enter a margin of 100% or more.

Three worked examples

You know the markup

Cost 50, markup 40%. Price = 50 x 1.40 = 70.00. Profit = 70.00 – 50 = 20.00. Margin = 20 / 70 x 100 = 28.57%.

You know the margin

Cost 50, margin 40%. Price = 50 / (1 – 0.40) = 50 / 0.60 = 83.33. Profit = 83.33 – 50 = 33.33. Markup = 33.33 / 50 x 100 = 66.67%.

You know the cost and the price

Cost 80, price 100. Profit = 20.00. Markup = 20 / 80 x 100 = 25.00%. Margin = 20 / 100 x 100 = 20.00%.

Notice that in the first two examples the same cost of 50 produces two very different prices, 70.00 and 83.33, depending on whether 40% is a markup or a margin. The 13.33 gap is the cost of mixing the two terms up.

Conversion table

You can convert between the two without knowing the cost. To go from markup to margin, divide the markup by 100 plus the markup. To go from margin to markup, divide the margin by 100 minus the margin. Here are some common values.

The pattern is worth remembering: a 100% markup, which means you double the cost, is only a 50% margin.

Mistakes that come from mixing them up

Most pricing errors with these two terms come down to a handful of habits. Here are the ones we see in the numbers.

Aiming for a margin but adding a markup. Say you want a 40% margin on an item that costs 50. If you add 40% to the cost, the price is 70.00, and the margin you actually earn is 28.57%. You are 11.43 percentage points short of your target, and the gap is not a rounding error. The price you needed was 83.33.

Quoting one number and meaning the other. Suppose a supplier says “we work on 25%”. Is that a 25% markup, which is a 20.00% margin, or a 25% margin, which is a 33.33% markup? The two readings differ by more than 13 percentage points in the other measure. Always ask which one, or write the formula down.

Comparing products on different bases. If one product is judged on markup and another on margin, the two will never line up. A 100% markup looks twice as good as a 50% margin, yet they describe exactly the same sale.

A quick check helps. Take your price and your cost, work out the profit, and divide it both ways. If your result does not match the number you were aiming for, you have used the wrong measure.

Which one should you use?

Neither is better. They are tools for different jobs. This short guide can help you choose.

• Setting a price from a supplier cost. Markup is natural, because you start from the cost and add a percentage.
• Judging how healthy a sale is. Margin is the more useful view, because it tells you what share of the money you take in is profit.
• Comparing with fees and ad costs. Fees and advertising are usually quoted against the selling price, so margin lines up with them. Our guides on eBay fees and break-even ROAS both work from the price.
• Talking to someone else. Always say which one you mean. “40%” on its own is ambiguous.

If you want to try a few numbers, the Markup vs Margin Calculator has three modes: cost and markup, cost and margin, or cost and price. For the other tools in this group, see the Seller and Business Calculators page.

Frequently asked questions

Tools used in this guide

• Markup vs Margin Calculator

Related articles

Photo: Haberdoedas on Unsplash