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Comparison · Pricing & Margin

Markup vs Margin: What Is the Difference?

Markup and margin compared: what each measures, how to convert one into the other and when to use which.

By PriceAndProfit Editorial Updated

Different bases Short answer

markup divides profit by cost, margin divides profit by price — so a 75% markup is only a 42.9% margin

The same $30 gross profit is 75% of $40 cost and about 42.9% of $70 price.
Hypothetical example. Percentages use different denominators; the profit dollars do not change.

Take an item that costs $40 and sells for $70. The profit is $30 either way. Markup compares it with the cost: $30 ÷ $40 = 75%. Margin compares it with the price: $30 ÷ $70 = 42.9%. Same sale, same dollars, two different percentages — and quoting one when you mean the other can leave you underpriced.

Markup and margin compared
MarkupMargin
Formula (Price − Cost) ÷ Cost (Price − Cost) ÷ Price
$40 cost, $70 price 75% 42.9%
For positive cost and price Can be negative; no upper limit Below 100%; can be negative
Answers How much do I add to the cost? How much of each sale do I keep?
Convert Markup = Margin ÷ (1 − Margin) Margin = Markup ÷ (1 + Markup)

Markup

  • Use it for: Setting prices from supplier invoices — one percentage applied to every cost.
  • Watch out for: A 40% markup keeps only 28.6% of the price; it is not a 40% margin.

Margin

  • Use it for: Planning profit, comparing products and reading financial statements, where everything is a share of sales.
  • Watch out for: To price for a margin, divide by (1 − margin), do not multiply by (1 + margin).
Bottom line

Price with whichever is convenient, but plan and report in margin. When someone quotes a percentage, ask which base it uses.

Worked examples: converting both ways

Conversions and the price they give on a $30 cost
You quoteEquivalentPrice on a $30 cost
30% margin 42.9% markup $42.86
40% margin 66.7% markup $50.00
40% markup 28.6% margin $42.00
50% margin 100% markup $60.00
60% markup 37.5% margin $48.00

The third row is the classic mix-up. A buyer asks for "40% on everything" and means margin; the seller adds 40% to cost. On a $30 item the margin reading gives $50 and the markup reading $42 — $8 apart per unit, $4,000 apart on 500 units. Agree on the base before agreeing on the number.

Which one moves when you discount

Both ratios fall when you discount, by different amounts. A $50 item that costs $30 has a 40% margin and a 66.7% markup. After 20% off it sells for $40, keeps $10 of profit and has a 25% margin and a 33.3% markup. The margin fell 15 percentage points and the markup 33.3 points, but the profit was halved in both views. When you plan promotions, look at the dollars of profit, not just the percentage you happen to be using.

Gross profit margin, the figure in most financial reports, uses the same denominator as margin here: gross profit divided by revenue. A store with $50,000 of sales and $30,000 of cost of goods sold has a 40% gross margin, which on a single item is the same as a 66.7% markup on cost.

Frequently asked questions

How do I turn a target margin into a markup?

Divide the margin by one minus the margin. For a 40% margin: 0.40 ÷ 0.60 = 66.7% markup.

Which number is bigger?

Markup, for any profitable sale, because the cost it is divided by is smaller than the price.

Where are they equal?

Only at zero profit, where both are 0%.

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