Markup vs Margin: What's the Difference and Which Should You Use?
Markup and margin both describe the profit on a sale. Markup is profit ÷ cost. Margin is profit ÷ selling price. Buy something for $10 and sell it for $15: the profit is $5, the markup is 50% and the margin is 33.3%. Same $5, two different percentages, because each divides by a different number.
The two get mixed up all the time, and the confusion has a price: a shop that sets a "30% profit" using the wrong one can earn less than it planned. This guide gives the formulas, a conversion table you can save, and a worked example of the mistake.
Markup vs margin at a glance
| Markup | Margin | |
|---|---|---|
| Formula | (Price − cost) ÷ cost × 100 | (Price − cost) ÷ price × 100 |
| Divides profit by | Cost | Selling price |
| Question it answers | "How much did I add on top of what I paid?" | "How much of each sale do I keep?" |
| Can it exceed 100%? | Yes | No, never |
| On a profitable sale | The larger number | The smaller number |
The example from the top, laid out:
- Cost: $10
- Selling price: $15
- Profit: $15 − $10 = $5
- Markup: $5 ÷ $10 × 100 = 50%
- Margin: $5 ÷ $15 × 100 = 33.3%
Free tool: type those numbers into the profit margin and markup calculator and it shows both at once, plus the price you need for a target margin.
How to get from cost to price with each one
With a markup: Price = cost × (1 + markup)
- Cost $10, markup 50%: $10 × 1.50 = $15.00
With a margin: Price = cost ÷ (1 − margin)
- Cost $10, margin 33.3%: $10 ÷ 0.667 = $15.00
Both land on $15, because they describe the same product. The difference shows when you pick a round number. Take 30%:
| Target | Calculation | Selling price | The other number |
|---|---|---|---|
| 30% markup | $10 × 1.30 | $13.00 | Margin is 23.1% |
| 30% margin | $10 ÷ 0.70 | $14.29 | Markup is 42.9% |
The same "30%" gives prices $1.29 apart on a single item, which is real money across a few hundred sales. If you want help on turning a margin into prices across your range, see how to price a product for profit.
Markup to margin conversion table
Save or screenshot this. Every row is the same pair of numbers read two ways.
| Markup | Equals margin of | Margin | Equals markup of |
|---|---|---|---|
| 10% | 9.1% | 10% | 11.1% |
| 20% | 16.7% | 20% | 25% |
| 25% | 20% | 25% | 33.3% |
| 30% | 23.1% | 30% | 42.9% |
| 33.3% | 25% | 40% | 66.7% |
| 50% | 33.3% | 50% | 100% |
| 100% | 50% | 60% | 150% |
| 200% | 66.7% | 75% | 300% |
The conversion formulas, if you need a value that is not in the table:
- Margin = markup ÷ (1 + markup). Example: 50% markup → 0.50 ÷ 1.50 = 33.3%.
- Markup = margin ÷ (1 − margin). Example: 20% margin → 0.20 ÷ 0.80 = 25%.
Two patterns worth remembering. A "double your money" price (100% markup) is only a 50% margin. And a 75% margin means the price is four times the cost, which is a 300% markup.
The mistake that costs money: pricing by markup, budgeting by margin
Some of the costs between your price and your pocket are a percentage of the selling price: a marketplace commission, a card fee, a sales commission for staff. Rent and wages are not, but they are easier to plan as a share of sales. That is why many shops talk about margin when they plan, and use markup when they set a price. The danger is mixing the two.
Here is a made-up example. You sell a product that costs $20. You add a 50% markup and price it at $30. A marketplace takes a 10% commission on the selling price.
| Amount | |
|---|---|
| Selling price | $30.00 |
| Cost | $20.00 |
| Marketplace commission (10% of $30) | $3.00 |
| Profit | $7.00 |
| Margin on the sale | 23.3% |
On paper the product had a 50% markup and a 33.3% margin before commission. After a commission that is calculated on the price, the real margin is 23.3%. If you were counting on a third of each sale as profit, you keep $7 instead of the $10 you expected.
To protect a target, add the percentage costs to the margin you need. If you want to keep 30% and the commission is 10%, price to a 40% margin: $20 ÷ 0.60 = $33.33. Check: commission $3.33, profit $33.33 − $20 − $3.33 = $10.00, which is exactly 30% of $33.33. For platform fees, shipping and returns in one calculation, use the marketplace seller profit calculator.
Which should you use?
| Situation | Use |
|---|---|
| Quick price from a supplier cost ("double it", "add 40%") | Markup |
| Planning your budget, rent and running costs as a share of sales | Margin |
| Comparing products or months | Margin (it is capped at 100% and tied to sales) |
| Checking a supplier's or wholesaler's quote | Ask which one they mean |
| Reporting profit for your business | Margin |
There is no wrong choice. A wrong label is the problem. When someone says "I make 40%", ask: "40% of what, the cost or the price?"
In a spreadsheet
If your cost is in cell A2 and the selling price in B2:
- Markup: `=(B2-A2)/A2`
- Margin: `=(B2-A2)/B2`
- Price from a target margin in C2: `=A2/(1-C2)`
- Price from a target markup in C2: `=A2*(1+C2)`
Format the cells as percentages. Swapping A2 and B2 in the divisor is the most common formula error.
See profit in your reports instead of working it out by hand
The percentages are only as good as the cost behind them. If each product in your records has a cost and a selling price, profit comes from your records instead of being something you work out at month-end.
In Daily Sales Record each product holds a cost and a selling price, and the Business Report shows profit for the dates you choose.
Profit on a sale is the selling amount minus the cost recorded for the item, so a product with no cost recorded will show a profit that looks too high. In Cost Settings (the gear icon at the top right of Purchase Orders) you choose whether the cost used when you record a sale is the last, maximum or average purchase cost. When you want a markup or margin percentage for a product, use the formulas above or the free calculator.
Frequently asked questions
What is the difference between markup and margin?
Both describe the same profit in dollars. Markup divides that profit by the cost; margin divides it by the selling price. Because the selling price is larger than the cost, the margin percentage is always smaller than the markup percentage on a profitable sale.
What is the difference between a 30% margin and a 30% markup?
A 30% markup on a $10 cost gives a price of $13.00 and a margin of 23.1%. A 30% margin on a $10 cost gives a price of $14.29 and a markup of 42.9%. The margin target needs the higher price.
Is a 20% margin the same as a 25% markup?
Yes. A product costing $80 sold for $100 has a profit of $20: that is 20% of the $100 selling price (margin) and 25% of the $80 cost (markup).
What margin is a 50% markup?
A 50% markup is a 33.3% margin. Cost $10, price $15, profit $5: $5 ÷ $15 = 33.3% margin, and $5 ÷ $10 = 50% markup.
Should I price using markup or margin?
Either works, as long as you know which one you are using. Markup is quick when you are adding to a cost. Margin is easier to plan with, because rent, fees and commissions are usually a percentage of the selling price. Many owners set a target margin and convert it to a price with cost ÷ (1 − margin).
Final takeaway
Markup = profit ÷ cost. Margin = profit ÷ selling price. The same profit is always the bigger percentage as a markup and the smaller one as a margin. Name the one you mean every time you quote a percentage, and when costs are a share of the price, set your price from the margin.
For the margin formulas in full, including gross, operating and net margin, read how to calculate profit margin. To see the overall effect on your shop, see how to calculate profit for a small business.
Examples use made-up figures. This article is general information, not accounting or tax advice.