Margin vs. Markup: The Difference That Trips Everyone Up

Margin and markup describe the exact same dollar amount of profit - they just express it as a percentage of two different things. That single difference is responsible for a lot of pricing confusion.

The two formulas

• Margin = profit ÷ selling price
• Markup = profit ÷ cost

Same numerator, different denominator. That's the entire distinction - but it produces two noticeably different percentages from the same sale.

A worked example

Say something costs you $60 to make, and you sell it for $100. Profit is $40.

• Margin: $40 ÷ $100 (selling price) = 40%
• Markup: $40 ÷ $60 (cost) = 66.7%

Same sale, same $40 profit, two very different-looking percentages. If someone tells you they "markup 40%," and you mentally read that as a 40% margin, you'll be planning around a materially different profit level than what's actually happening.

Why this matters in practice

If you're setting prices based on a target margin (a common approach: "I want 40% margin on everything I sell"), you can't just add 40% to your cost - that gives you a 40% markup, which works out to only a 28.6% margin. To hit an actual 40% margin from a $60 cost, the selling price needs to be $100 (as in the example above), not $84.

The formula to go from a target margin to a selling price is:

selling price = cost ÷ (1 − target margin)

For the $60-cost, 40%-margin example: $60 ÷ (1 − 0.40) = $60 ÷ 0.60 = $100. That's the number that actually gets you there - dividing, not just adding a percentage to cost.

Try it yourself

Our Percentage Calculator has dedicated margin and markup modes, alongside discount, tax, tip, and general percentage-increase/decrease calculations - enter your cost and either your price or your target percentage, and it works out the rest.