Margin vs markup: the difference, the formulas and a conversion table
Published
Margin is profit divided by the selling price. Markup is profit divided by the cost. They describe the same profit, so the same sale always has a higher markup than margin. Treating one as the other is one of the most common reasons a product earns less than planned.
The formulas
- Margin = (price − cost) ÷ price
- Markup = (price − cost) ÷ cost
If a product costs £60 and sells for £100, the profit is £40. That is a 40% margin (40 ÷ 100) and a 66.7% markup (40 ÷ 60).
The mistake that costs money
Say you want a 40% margin and you add 40% to the cost:
| Amount | |
|---|---|
| Cost | £60.00 |
| Price with a 40% markup | £84.00 |
| Profit | £24.00 |
| Actual margin (24 ÷ 84) | 28.6% |
You planned to keep 40p of every pound and you keep under 29p. To reach a 40% margin, the price has to be:
Price = cost ÷ (1 − margin) = £60 ÷ 0.60 = £100
Converting between the two
- Markup = margin ÷ (1 − margin)
- Margin = markup ÷ (1 + markup)
| Markup | Margin |
|---|---|
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 50% | 33.3% |
| 100% | 50.0% |
| 150% | 60.0% |
| 200% | 66.7% |
Markup has no upper limit, but margin can never reach 100%: that would need an infinite price.
Which one should you use?
Use margin when you compare products or check whether a price covers your overheads, because it answers “how much of each sale do I keep?”. Use markup when you build a price up from cost, for example in a wholesale price list. Whichever you use, say which one it is.
What margin and markup leave out
Both numbers compare price and cost only. For an online seller, the real profit also depends on:
- VAT: if your price includes VAT, calculate margin on the price without VAT. At 20% VAT, a £120 shelf price is £100 of revenue.
- Marketplace and payment fees, often charged on the VAT-inclusive price.
- Returns: refunded orders still cost you postage.
The profit calculator includes all three and shows the margin on what you actually keep.