Markup vs Margin: The Difference That Changes Your Prices
Markup vs margin explained: why a 50% markup is only a 33% margin, both conversion formulas, a worked pricing example, and a full markup to margin table.
Same profit, different denominator
Both terms describe the gap between what something costs you and what you sell it for. They differ only in what they divide that gap by.
- Margin = profit / selling price
- Markup = profit / cost
Buy for $60, sell for $100. Profit is $40.
- Margin = 40 / 100 = 40%
- Markup = 40 / 60 = 66.7%
Same transaction, two numbers that are nowhere near each other. Margin can never exceed 100%. Markup has no ceiling.
The classic pricing mistake
A shop owner wants a 40% margin. They take a $60 cost and add 40%: 60 x 1.40 = $84. But at $84 the margin is 24 / 84 = 28.6%, not 40%. They have quietly given away more than a quarter of the intended gross profit on every unit.
Repeat that across a catalog and it is the difference between a profitable year and a break-even one.
Conversion formulas
To go from markup to margin:
margin = markup / (1 + markup)
To go from margin to markup:
markup = margin / (1 - margin)
To price correctly from a target margin:
price = cost / (1 - margin)
For the 40% margin on a $60 cost: 60 / (1 - 0.40) = 60 / 0.60 = $100. That is the price that actually delivers 40%.
Conversion table
| Markup | Equivalent margin |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 30% | 23.1% |
| 40% | 28.6% |
| 50% | 33.3% |
| 60% | 37.5% |
| 75% | 42.9% |
| 100% | 50.0% |
Read it in reverse to price from a margin target: a 50% margin requires a 100% markup, a 33.3% margin requires a 50% markup.
Worked pricing example
You manufacture a product for $18 in materials and labor. Target margin: 45%.
- Price = 18 / (1 - 0.45) = 18 / 0.55 = $32.73
- Gross profit per unit = 32.73 - 18 = $14.73
- Check the margin: 14.73 / 32.73 = 45%. Correct.
- Equivalent markup: 14.73 / 18 = 81.8%
If a distributor demands a 20% discount, your price becomes $26.18 and margin drops to (26.18 - 18) / 26.18 = 31.3% — a 14-point hit from a 20% discount. Discounts hit margin far harder than they look.
Which to use when
Use markup internally, when pricing up from known costs — it is the number you type into a spreadsheet. Use margin externally, in reporting and comparisons, because it is the industry standard for gross profit and the figure investors and lenders expect.
FAQ
Is a 50% markup the same as a 50% margin? No. A 50% markup produces a 33.3% margin. Reaching a 50% margin requires a 100% markup.
How do I convert markup to margin? Divide markup by (1 + markup). A 0.60 markup gives 0.60 / 1.60 = 37.5% margin.
Which is better to use, markup or margin? Price with markup, report with margin. Just never mix them up in the same sentence — that is where money leaks.
Run the numbers with the Margin Calculator, then confirm the pricing supports your fixed costs using the Break-Even Calculator. For discount math, see how to calculate a discount.
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*Price from cost or margin without the arithmetic slip: use the Margin Calculator.*