Margin vs Markup: What's the Difference?

Both start with the same profit: price − cost. They differ only in what you divide by.

• Margin = profit ÷ price. How much of each sales dollar you keep.
• Markup = profit ÷ cost. How much you added on top of what you paid.

A $25 item sold for $40 makes $15 profit:

Because the price is always bigger than the cost (when you make a profit), markup is always the bigger percentage.

• Markup → margin: markup ÷ (1 + markup). A 50% markup is 0.5 ÷ 1.5 = 33.3% margin.
• Margin → markup: margin ÷ (1 − margin). A 40% margin is 0.4 ÷ 0.6 = 66.7% markup.

Handy pairs to remember: 25% markup = 20% margin, 50% markup = 33.3% margin, and a 100% markup (doubling the cost, called "keystone" pricing in retail) = 50% margin.

If you want a 40% margin, the cost has to be the other 60% of the price. So divide:

The shortcut most people reach for, cost × 1.4 = $35, is a 40% markup. Its margin is only 10 ÷ 35 = 28.6%. That's about 11 cents less profit on every dollar of sales.

An item costs $60 and sells for $100: a $40 profit and a 40% margin. Now run a 20% sale:

• The price drops to $80, but the cost stays $60.
• Profit falls from $40 to $20, half of what it was.
• The margin falls from 40% to 25%.

To make the same total profit at the sale price, you'd need to sell twice as many. Work out sale prices with the Percent Off Calculator and check the new margin before you commit.

• Gross margin uses only the cost of the goods themselves. That's what this guide and the calculator work out.
• Net margin subtracts everything else too: rent, wages, marketing, taxes. It's always lower, often by a lot.

A shop with a 40% gross margin might keep only 5 to 10% as net profit once the bills are paid. Price with the gross margin you need to cover those costs.

• Using a markup when you meant a margin (cost × 1.4 for a "40% margin").
• Expecting a 100%+ margin: margin can't reach 100%; only markup can.
• Forgetting shipping and fees in the cost, which quietly shrinks the margin.
• Comparing margins with a supplier's markups: confirm which one everybody means.

Check your answers with the Margin and Markup Calculator.

1. Cost $30, price $50. Margin and markup?
   Show answer

   Profit $20: 40% margin, 66.7% markup.
2. Cost $12 with a 25% markup. Price and margin?
   Show answer

   $15, a 20% margin.
3. Cost $45, and you want a 25% margin. What price?
   Show answer

   $60. 45 ÷ 0.75.
4. What margin is a 40% markup?
   Show answer

   28.6%. 0.4 ÷ 1.4.
5. What markup gives a 30% margin?
   Show answer

   42.9%. 0.3 ÷ 0.7.
6. Cost $80, price $100. What's the margin after a 10% discount?
   Show answer

   11.1%. The price is $90, so profit is $10 and 10 ÷ 90 = 0.111.