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Margin vs Markup: The Difference That Costs Businesses Money

Add 50% to your cost and you might think you make a 50% margin. You make 33%. That mix-up quietly underprices thousands of products.

💹Free Profit Margin Calculator
Margin, markup and the price to charge.Open tool →

The definitions

Markup is profit divided by cost. Margin is profit divided by selling price. Buy for 40, sell for 65: profit is 25, markup is 62.5%, margin is 38.5%.

Quick conversions

25% markup = 20% margin. 50% markup = 33.3% margin. 100% markup = 50% margin. 200% markup = 66.7% margin.

Pricing for a target margin

Price = cost divided by (1 minus margin). For a 50% margin on a 40 cost: 40 / 0.5 = 80. The Profit Margin Calculator does this for you.

Don't forget overheads

Gross margin only covers the direct cost of the product. Rent, wages, software and advertising come out of it, so know the margin you need to stay profitable after them.

Frequently asked questions

Which should I use?

Margin for understanding profitability; markup for setting prices from cost.

Can margin exceed 100%?

No. Markup can.

What margin should I aim for?

Enough to cover overheads and leave net profit – it varies by industry.

💹Free Profit Margin Calculator
Margin, markup and the price to charge.Open tool →

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