Markup vs. Margin: What’s the Difference?

A retailer says they use a "50% markup" on every product. A different retailer says they run on a "50% margin." Ask which one makes more profit per sale, and most people guess they're the same. They're not — the margin retailer is earning significantly more per item, because markup and margin measure profit against two different bases.

The same numbers, two answers

Both markup and margin describe the relationship between what something costs to make or buy, and what it sells for. The dollar profit is identical either way — selling price minus cost. What differs is the number that profit gets divided by.

What markup is

Markup expresses profit as a percentage of the cost. It answers: "how much did we add on top of what we paid?"

Markup % = ((Selling Price − Cost) ÷ Cost) × 100

What margin is

Margin (or profit margin) expresses profit as a percentage of the selling price. It answers: "of every dollar a customer pays, how much is profit?"

Margin % = ((Selling Price − Cost) ÷ Selling Price) × 100

A worked example

An item costs $80 to produce and sells for $100. Profit is $20.

Markup = 20 ÷ 80 × 100 = 25% (profit relative to cost)

Margin = 20 ÷ 100 × 100 = 20% (profit relative to selling price)

Same $20 of profit, two different percentages, because $80 (cost) and $100 (price) are different numbers to divide by. You can run either version through our percentage calculator by plugging in the profit as the "part" and either the cost or the price as the "whole."

Is 50% markup the same as 50% margin?

No, and the gap is bigger than people expect.

50% markup on an $80 cost: Selling price = 80 × 1.50 = $120. Profit = $40. Margin on that sale = 40 ÷ 120 × 100 = 33.3%.

50% margin on a $100 selling price: Profit = 50% of $100 = $50, so cost = $100 − $50 = $50. Markup on that = 50 ÷ 50 × 100 = 100%.

For the same profit percentage number, margin is always the smaller of the two (when there's a profit at all) — because selling price is always larger than cost, and margin divides by the larger number.

Converting between markup and margin

You can convert one to the other without knowing the actual dollar amounts, using these two formulas (with both percentages expressed as decimals):

Margin = Markup ÷ (1 + Markup)

Markup = Margin ÷ (1 − Margin)

Check it against the example above: a 25% markup (0.25) converts to margin as 0.25 ÷ 1.25 = 0.20 = 20% margin — matching the $80/$100 example exactly.

Why it matters for pricing

Businesses that intend to run on, say, a 30% margin will price incorrectly if they set a 30% markup instead — a 30% markup only produces roughly a 23% margin (0.30 ÷ 1.30 = 0.2308), undershooting the intended profit share on every sale. At scale, that gap compounds into a meaningfully different bottom line. Getting the two clearly separated when setting prices, discounts, or profit targets isn't a technicality — it changes the actual numbers on the sheet. For related pricing math, see how percentage discounts work.

The common mix-up

The mix-up almost always goes one direction: someone calculates a percentage based on cost (markup) but reports or budgets it as if it were a percentage of revenue (margin), overstating expected profitability. Because margin is always smaller than markup for the same dollar profit, mistaking one for the other tends to make a pricing plan look more profitable on paper than it actually is.