Margin and markup are two of the most commonly confused terms in business — and the mix-up isn't harmless. Treat a target margin as a markup and you'll systematically underprice. Both describe the same profit; they just measure it against a different base.
The definitions
- Profit = selling price − cost.
- Margin = profit as a percentage of the selling price (revenue): (profit ÷ price) × 100.
- Markup = profit as a percentage of the cost: (profit ÷ cost) × 100.
The key difference
Consider an item that costs $80 and sells for $100. The profit is $20. As a margin, that's 20 ÷ 100 = 20%. As a markup, it's 20 ÷ 80 = 25%. Same $20 profit, two different percentages — because margin divides by the price and markup divides by the cost. Margin is always the smaller of the two.
Margin ↔ markup conversion
Because they share the same profit, you can convert between them. A few useful pairs:
| Markup | Margin |
|---|---|
| 10% | 9.1% |
| 25% | 20% |
| 50% | 33.3% |
| 100% | 50% |
| 200% | 66.7% |
Why the confusion costs money
Say you want a 40% margin but you mistakenly apply a 40% markup to your cost. On a $60 item, a 40% markup gives a $84 price — but that's only a 28.6% margin, well short of your 40% target. To actually hit a 40% margin you'd need a price of $100 (a 66.7% markup). Over thousands of units, that gap is real money left on the table.
Worked example
Cost $50, and you want a 50% margin. Price = cost ÷ (1 − 0.50) = 50 ÷ 0.5 = $100. Check: profit $50 ÷ price $100 = 50% margin. The markup is $50 ÷ $50 = 100%. Pair this with discounts and VAT when you work out final shelf prices.