Markup vs Margin: What Is the Difference?
Markup and margin both describe how much profit you make, but they use different bases. Mixing them up is one of the easiest pricing mistakes, and it usually leads to charging less than you meant to. This guide explains both, shows the formulas and gives examples.
The definitions
Markup is your profit divided by your cost. Margin is your profit divided by your selling price. Profit is the same in both cases: price minus cost.
A simple example
Say something costs you 60 and you sell it for 100. Profit is 40. Markup is 40 / 60, which is 66.7%. Margin is 40 / 100, which is 40%. Same sale, two different percentages.
Why the difference matters
Suppose you decide you want a 40% margin but you add a 40% markup to a cost of 60. The price becomes 84 and the profit is 24. Your real margin is 24 / 84, or about 28.6%, well below the 40% you wanted. To reach a true 40% margin on a cost of 60, the price has to be 100.
Margin is always lower than markup, unless both are zero. The higher the markup, the bigger the gap between the two.
The formulas
Profit = price - cost.
Markup % = profit / cost x 100.
Margin % = profit / price x 100.
Price from markup = cost x (1 + markup).
Price from margin = cost / (1 - margin).
Another example
Cost 200. A 50% markup gives a price of 300, which is a margin of 33.3%. A 50% margin needs a price of 400, which is a markup of 100%. If a supplier says they price with a 50% margin, it is a very different price from a 50% markup.
Which one should you use?
Margin is useful for judging how profitable your business is, because it tells you how much of every sale you keep. Markup is handy for setting prices from costs, such as in retail or when reselling. The important thing is to know which one you are using and to stay consistent.
Margin is not the same as take-home pay
The margin from the examples above covers only the direct cost of the item or service. You still have overheads such as software, equipment, insurance, marketing and your own time, and then tax. A business needs a healthy margin to cover those costs and still leave something for you.
Pricing services
If you sell services, your cost is mostly time. You can treat your hourly cost as the cost and add a margin, but a better method is to start from your income goal and expenses to find the rate you need. For that, see our guide on how much a freelancer should charge per hour.
Common mistakes
Using markup and margin interchangeably.
Quoting a margin to a supplier or client who thinks in markup.
Forgetting costs such as fees, refunds, shipping or your own time.
Ignoring tax when you calculate how much you really keep.
Check your numbers
Use our margin and markup calculator to enter your cost and price and see profit, margin and markup instantly. Then use the project price calculator if you are pricing a service.