Markup vs Margin: How to Calculate Both (With Examples)

Markup and margin both describe the gap between what something costs you and what you sell it for, but they are calculated differently and give different percentages. Mixing them up can quietly cost you money, so here is the difference in plain terms.

The short version

• Markup compares profit to cost. It answers: how much did I add on top of what I paid?
• Margin compares profit to the selling price. It answers: how much of the sale price is profit?

Same profit, different reference point, so the two percentages are never equal.

The formulas

If an item costs you $60 and you sell it for $100, your profit is $40.

Markup % = (profit ÷ cost) × 100 = (40 ÷ 60) × 100 = 66.7%

Margin % = (profit ÷ selling price) × 100 = (40 ÷ 100) × 100 = 40%

Notice that the same $40 profit is a 66.7% markup but only a 40% margin. Markup is always the larger number, because cost is smaller than the selling price.

A quick comparison

| Item cost | Selling price | Profit | Markup | Margin | |---|---|---|---|---| | $50 | $100 | $50 | 100% | 50% | | $80 | $100 | $20 | 25% | 20% | | $60 | $90 | $30 | 50% | 33.3% |

Why the difference matters

If a supplier tells you they work on a "40% markup" and you assume that means a 40% margin, you will misjudge your profit. On a $100 sale, a 40% markup is only about a 28.6% margin. Retailers usually think in margin, because it tells you what share of each sale you keep, while markup is handy when you set a price by adding to cost.

Work it out instantly

Both markup and margin are percentage sums, so our free Percentage Calculator makes them quick. Use the "X is what percent of Y" row with profit and cost for markup, or profit and selling price for margin, and you have your answer without touching a formula.

Frequently asked questions

Is markup or margin higher? Markup is always higher than margin for the same sale, because markup divides profit by the smaller cost while margin divides it by the larger selling price.

How do I convert markup to margin? Margin = markup ÷ (1 + markup), using the decimals. A 50% markup (0.5) is 0.5 ÷ 1.5 = 0.333, or a 33.3% margin.

Which should I use to set prices? Either works if you are consistent. Many businesses set prices with markup and report profitability with margin.

The takeaway

Markup measures profit against cost, margin measures profit against the sale price, and they are never the same number. Pick one, know which one you are quoting, and you will price with confidence and avoid an expensive misunderstanding.