Markup and margin are two ways of describing the same gap between what something costs you and what you sell it for. They are not interchangeable, and mixing them up is one of the most common — and expensive — mistakes in small business pricing. A "50% markup" and a "50% margin" are very different prices.
The two definitions
- Markup — profit as a percentage of cost. How much you add on top of what you paid.
- Margin — profit as a percentage of the selling price. How much of each sale you keep.
Cost = $100, Selling price = $150, Profit = $50 Markup = profit / cost = 50 / 100 = 50% Margin = profit / price = 50 / 150 = 33.3%
Same product, same profit — but 50% markup equals only a 33% margin. They describe the identical transaction from two different reference points: markup looks up from your cost, margin looks down from your price.
Why confusing them costs real money
Say you want to "make 40%" on a product that costs you $60. If you mean margin but accidentally apply it as markup, you set the price at $84 ($60 + 40%). But a true 40% margin requires a price of $100. You just underpriced by $16 on every single unit — and at volume, that mistake compounds into serious lost profit while you believe you are hitting your target.
Which one should you use?
- Use markup when pricing from cost — "add X% to what I paid" is how most retailers and wholesalers think.
- Use margin when analysing profitability — investors, accountants and P&L statements speak in margin.
- Whichever you choose, be consistent, and make sure your team means the same thing by "40%".
Convert between them instantly
You do not need to memorise the conversion. The Markup Calculator takes your cost and desired markup and shows the selling price, profit and the resulting margin side by side — so you can see both numbers at once and price with confidence. When you want to work the other way, from a target margin down to the price, the Profit Margin Calculator does the reverse.
