Markup vs margin guide

Markup vs Margin: The Difference, Formulas and Conversion

Markup is profit as a share of cost. Margin is profit as a share of price. Mixing them up leads to underpricing, so here is the difference in numbers.

The formulas

  • Markup % = (price – cost) / cost
  • Margin % = (price – cost) / price

Same sale, two numbers

An item costs $60 and sells for $100. Profit is $40.

MeasureCalculationResult
Markup40 / 6066.7%
Margin40 / 10040%

Convert between them

  • Margin = markup / (1 + markup)
  • Markup = margin / (1 – margin)
MarkupMargin
25%20%
50%33.3%
100%50%

A 50% markup is only a 33.3% margin: 0.5 / 1.5 = 0.333.

Set a price

  • From a markup: price = cost x (1 + markup). Cost $60 and 50% markup gives $90.
  • From a target margin: price = cost / (1 – margin). Cost $60 and a 40% margin gives $100.

The common mistake is adding 40% to cost when you wanted a 40% margin. $60 x 1.4 = $84, which is only a 28.6% margin.

Excel formulas

Cost in A2, price in B2: markup =(B2-A2)/A2, margin =(B2-A2)/B2, price from a 40% margin =A2/(1-40%).

Which should I use?

Use margin when you compare profitability with other businesses or report to a finance team. Use markup for quick shelf pricing. For service work, build the price from your costs and desired margin, see how to price service jobs. Check numbers with the gross margin calculator and read how to calculate gross profit.

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    Frequently asked questions

    Is markup higher than margin?

    Yes. For the same sale markup is always larger than margin, because it divides by the smaller cost.

    What markup gives a 50% margin?

    100%. Price is twice the cost.

    Can margin be over 100%?

    No. Markup can exceed 100%, but margin cannot, because profit cannot exceed the price.

    Which is better for pricing?

    Many businesses set prices from a target margin because it ties directly to profit as a share of sales.

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    More free tools: All free tools · Gross margin calculator · Gross profit calculator · Price service jobs