Margin vs. Markup: What's the Difference (and Why It Matters for Pricing)
September 18, 2026
Margin and markup describe the same profit but as a percentage of two different numbers. Margin = (Price − Cost) / Price. Markup = (Price − Cost) / Cost. Because margin divides by the larger number (price) and markup divides by the smaller number (cost), markup is always a bigger percentage than margin for the same sale — and confusing the two is one of the most common pricing mistakes in small business.
Skip the math and get your answer instantly:
Open the Margin & Markup Calculator →The Two Formulas Side by Side
Both start from the same profit dollar amount; they just divide it by a different base.
| Term | Formula | Answers the question |
|---|---|---|
| Margin | (Price − Cost) / Price × 100 | What % of the selling price is profit? |
| Markup | (Price − Cost) / Cost × 100 | What % did I add on top of cost? |
Worked Example
An item costs $60 to make and sells for $100. Profit is $40 either way — but expressed as two different percentages.
- Margin: $40 / $100 = 40%
- Markup: $40 / $60 = 66.7%
- Same $40 profit, two different-looking percentages depending on which base you use.
Why the Gap Gets Bigger at Higher Percentages
At low percentages, margin and markup are close together — a 10% margin is about an 11.1% markup. But as the percentage increases, the gap widens dramatically: a 50% margin is a 100% markup, and an 80% margin is a 400% markup. This is why a quoted 'markup' and a quoted 'margin' can sound wildly different even when they describe the identical price.
Setting a Price for a Target Margin
If you know your cost and want a specific margin, solve for price directly: Price = Cost / (1 − Margin). For a $40 cost item with a 50% margin target: $40 / (1 − 0.5) = $80. Note this is different from simply adding 50% to the cost (which would only give $60 — a 33.3% margin, not 50%).
The Common Pricing Mistake
Business owners often say 'I want a 50% markup' when they actually mean 'I want to keep 50% of the sale price as profit' — which is a margin, not a markup. Pricing to a 50% markup when you meant a 50% margin leaves 16.7 percentage points of profit on the table on every sale. Before pricing anything, confirm which term a supplier, client, or spreadsheet is actually using.
Frequently Asked Questions
Is a 50% markup the same as a 50% margin?
No. A 50% markup on a $60 cost item gives a $90 price and a margin of only 33.3% ($30 profit / $90 price). A 50% margin on the same $60 cost item requires a $120 price instead.
How do I convert markup to margin?
Margin = Markup / (1 + Markup), as decimals. A 50% markup (0.5) converts to 0.5 / 1.5 ≈ 33.3% margin.
How do I convert margin to markup?
Markup = Margin / (1 − Margin), as decimals. A 25% margin (0.25) converts to 0.25 / 0.75 ≈ 33.3% markup.
Which should retailers use — margin or markup?
Retailers typically think in margin, since it directly answers 'what percent of my revenue is profit,' which ties to overall business profitability. Wholesalers and manufacturers more often think in markup, since it reflects how much they added on top of their cost. Always confirm which convention a specific contract, supplier, or piece of software is using.
What's a good profit margin for a small business?
It varies enormously by industry — retail often runs 20-50% gross margin, professional services can be 50%+ , while wholesale/distribution businesses often operate on much thinner single-digit-to-teens margins. Compare against your specific industry's benchmarks rather than a universal number.