Markup and margin are two ways of describing the same profit. They get confused constantly, and the confusion costs money: price with the wrong one and you can end up with a third less profit than you planned.
The short version
Markup is profit as a percentage of what the item cost you. Margin is profit as a percentage of what you sold it for.
One sale, two percentages
You buy a candle for $10 and sell it for $15. The profit is $5.
- Markup = $5 ÷ $10 = 50%
- Margin = $5 ÷ $15 = 33.3%
Same candle, same $5. Because the selling price is always bigger than the cost, the margin percentage is always smaller than the markup percentage.
Where it goes wrong
Say your accountant tells you the business needs a 40% margin to cover overheads. You take a product that costs $60 and add 40%, giving $84.
That is a 40% markup. The margin is $24 ÷ $84 = 28.6%. To get a real 40% margin, the price needs to be:
That is a $16 difference on every sale.
Converting between them
| Markup | Margin |
|---|---|
| 20% | 16.7% |
| 25% | 20% |
| 33.3% | 25% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
Which one should you use?
Use markup when you are setting prices from a supplier’s cost list. It is quick: cost times 1.5 for a 50% markup.
Use margin when you are looking at the health of the business. Profit and loss reports show gross profit as a share of sales, which is margin, and that is the number to compare against your overheads.
The safest habit is to always say which one you mean. “We work on 50%” tells nobody anything until you add “markup” or “margin”.
Try it with your own numbers: open the markup and margin calculator.