Markup vs Margin

Updated 2026-08-31 · ProfitKit

Markup and margin are calculated from the same two numbers — cost and price — and they are not the same percentage. Sellers who treat them as interchangeable systematically underprice, and the gap widens the higher the number goes.

The two formulas

Markup measures profit against cost:

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

Margin measures profit against price:

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

Same numerator. Different denominator. Because price is always larger than cost, the margin percentage is always the smaller of the two.

A worked example

Cost $10, price $15. Profit is $5.

• Markup: $5 ÷ $10 = 50%
• Margin: $5 ÷ $15 = 33.3%

A seller who wants a 50% margin and applies a 50% markup ends up with 33.3% — they have missed their target by a third of their profit, on every single unit.

Conversion table

Note the useful landmark: to get a 50% margin you need a 100% markup — you double the cost.

Pricing from a target margin

If you know the margin you want, do not add a percentage to cost. Divide instead:

Price = Cost ÷ (1 − target margin)

Cost $10, target margin 40%: $10 ÷ 0.60 = $16.67. Adding 40% to cost would have given $14 — a 28.6% margin.

Which one should you use?

Use markup when you are setting prices from a cost sheet, because cost is the number in front of you. Use margin when you are judging the health of the business, because margin is comparable across products and is what your accounts report. The mistake is not choosing one — it is quoting one and believing you have the other.

One caution: both formulas above use cost, and for an online seller cost is not just the wholesale price. Platform fees, payment processing and postage all belong in it. Run a real product through the calculator with those included and compare the margin to what your markup implied.

Do the calculation