Margin vs markup: the difference explained

Margin and markup both describe profit as a percentage. Margin compares it to the price. Markup compares it to the cost. Mixing them up is an easy way to price too low.

Updated

The formulas

profit = price - cost
margin = profit / price
markup = profit / cost

A worked example

A product costs 60 to make and sells for 100. The profit is 40.

The margin is 40 divided by 100, so 40 percent. The markup is 40 divided by 60, so 66.7 percent. It is the same sale and the same profit, described two ways.

Why it matters

If you want a 40 percent margin and add 40 percent to the cost, you end up with a 60 cost and an 84 price. That is a margin of only 28.6 percent.

Markup is always the bigger number for the same sale. Know which one a supplier, a client or your accountant means.

Convert between them

Use the decimals, not the percentages, in these formulas.

markup = margin / (1 - margin)
0.40 / 0.60 = 0.667

margin = markup / (1 + markup)
0.667 / 1.667 = 0.40

Find the price for a target margin

To reach a set margin, divide the cost by 1 minus the margin. For a 40 percent margin on a cost of 60, that is 60 divided by 0.6, so a price of 100. The profit margin calculator does this in its second mode, and shows margin, markup and profit for any cost and price.

Profit Margin CalculatorWork out profit, margin and markup from cost and price, or the price you need for a target margin.

Next steps

Once you know the profit per unit, work out how many units you need to sell to cover your fixed costs. If you sell to consumers, remember that margins are calculated on the price before VAT.

Break-Even CalculatorFind how many units you need to sell to cover your fixed costs, or to reach a profit target.

Tools for this guide

All tools →
Profit Margin CalculatorWork out profit, margin and markup from cost and price, or the price you need for a target margin.Break-Even CalculatorFind how many units you need to sell to cover your fixed costs, or to reach a profit target.VAT CalculatorAdd VAT to a net price or remove it from a gross price, with current rates for the UK and Europe.

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