Margin vs. Markup
They feel like the same thing. They're not. Confusing them is how businesses accidentally price themselves into a corner.
The one-sentence version
Markup is the percentage you add to your cost. Margin is the percentage of your revenue that is profit. Same numbers, different denominators.
Markup
Denominator is cost
Margin
Denominator is price / revenue
They diverge faster than you'd expect
| Cost | Markup | Price | Profit | Margin |
|---|---|---|---|---|
| $50 | 10% | $55 | $5 | 9.1% |
| $50 | 25% | $62.50 | $12.50 | 20% |
| $50 | 50% | $75 | $25 | 33% |
| $50 | 100% | $100 | $50 | 50% |
100% markup only gives you 50% margin. 50% markup gives you 33% margin. The confusion compounds at higher markups — which is why businesses that price by "doubling cost" think they're netting 50% when they're actually getting 33%.
When to use each
- Markup — Setting prices from cost. You know what something costs you, you want to set a price. Simple and widely understood in retail and wholesale.
- Margin — Analyzing profitability. What share of revenue are you keeping? This is what investors, lenders, and acquirers look at. It's what most accounting software reports.
Converting between them
Margin → Markup: Markup = Margin ÷ (1 − Margin)
Example: 50% markup → 50% ÷ 150% = 33.3% margin. 50% margin → 50% ÷ 50% = 100% markup.
The common mistake
A product costs $100. You want 30% margin, so you add 30% markup: $100 × 1.30 = $130. But $130 sale with $100 cost gives you $30 profit on $130 revenue — that's only 23% margin, not 30%. To get 30% margin, you need $100 ÷ 0.70 = $142.86.
This guide is for educational purposes. Business pricing should account for your full cost structure, market conditions, and competitive context.