“We make 40% on everything” can mean two very different things. Margin and markup are two views of the same profit, and the number changes depending on which one you quote.
Side by side
| Margin | Markup | |
|---|---|---|
| Formula | (price − cost) ÷ price | (price − cost) ÷ cost |
| Divides profit by | The selling price | The cost |
| Upper limit | Below 100% (it only approaches 100% as cost approaches zero) | None: it can exceed 100% |
| Common in | Financial reports, comparing profitability | Setting prices from cost |
The same sale, two numbers
An item costs $60 and sells for $100. Profit is $40. Margin is 40 ÷ 100 = 40%. Markup is 40 ÷ 60 = 66.7%. Use the Margin and Markup Calculator to see both for any pair of numbers.
Converting between them
Margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin), both in decimal form. Some common pairs:
| Markup | Equals margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
A markup of 100% only gives a margin of 50%, because profit equals cost but is only half of the price.
Which to use
Use markup when you are setting a price from a known cost, and margin when you are asking how profitable the business or product is, or comparing against targets that are stated as margins. Both are standard accounting definitions, and the only difference is the base you divide by. Always say which one you mean when you share a number. For the step-by-step pricing method, see Margin vs Markup: how to calculate both. These are gross figures before fees, tax and overheads, and not financial advice.
Frequently asked questions
Can margin be negative?
Yes. If you sell below cost, profit is negative and so is the margin. Selling exactly at cost gives a margin of 0%.
Which one goes on a price list?
Neither. A price list shows prices. Use markup to build a price from cost, and margin to check that the price makes enough profit.