Margin and markup both describe the profit on a sale, but they divide by different numbers, so the same sale gives two different percentages. Mixing them up is one of the most common pricing mistakes.
Profit = price − cost Markup = profit ÷ cost × 100 Margin = profit ÷ price × 100
Example (illustrative): cost $40, price $60. Profit is $20, the markup is 20 ÷ 40 = 50% and the margin is 20 ÷ 60 = 33.33%.
Price = cost ÷ (1 − margin)
For a 35% margin on a $40 cost: 40 ÷ 0.65 = $61.54. A common mistake is adding 35% to the cost ($54), which only gives a 25.9% margin.
Price = cost × (1 + markup)
Markup = margin ÷ (1 − margin) Margin = markup ÷ (1 + markup)
A 50% markup is a 33.33% margin; a 50% margin is a 100% markup. A margin can never reach 100%, but a markup can go above it.
For gross margin, use the direct cost of the item: materials, the purchase price, packaging, and per-sale fees if you want a fuller picture. Overheads like rent and software aren't included per unit; use a break-even calculation to see how many sales cover them.
Not financial or tax advice. Typical margins vary widely by industry.
Both use profit (price − cost), but markup divides it by cost and margin divides it by price. Cost $40 and price $60 is a 50% markup but a 33.33% margin.
Price = cost ÷ (1 − margin). A 35% margin on a $40 cost is $61.54, not $54.
Margin = markup ÷ (1 + markup) and markup = margin ÷ (1 − margin). A 50% markup is a 33.33% margin.
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