What Is the Difference Between Margin and Markup?
Margin and markup both describe the relationship between cost and price — but they are calculated differently and mean different things. Confusing them is a common and costly mistake.
Key Takeaways
- Markup is profit as a percentage of cost; margin is profit as a percentage of selling price.
- A 50% markup produces a 33% margin — they are never the same number (except at zero).
- Quoting the wrong figure to investors or partners can create serious misunderstandings about your profitability.
The core difference
Markup and margin both express the relationship between your cost and your selling price, but they use different denominators. Markup = (Price − Cost) / Cost. Margin = (Price − Cost) / Price. If you buy a product for £60 and sell it for £100, your markup is 67% (£40 / £60) and your margin is 40% (£40 / £100). The profit is the same £40 — only the percentage framing changes. This distinction matters enormously when setting prices, reporting to stakeholders, or comparing your numbers against industry benchmarks.
Converting between them
You can convert between the two using these formulas: Margin = Markup / (1 + Markup). Markup = Margin / (1 − Margin). A 50% markup equals a 33.3% margin. A 100% markup equals a 50% margin. A 25% margin equals a 33.3% markup. When someone says 'we make 30% on that product', always ask: 30% margin or 30% markup? The difference between them can be the difference between profit and loss on a high-volume product line.
Where confusion causes real problems
The most common error is using markup to price products but discussing margin with investors or finance teams. If your pricing spreadsheet targets 50% markup but your investor expects 50% margin, your actual margins are 17 percentage points lower than expected. In retail and wholesale, industry benchmarks are almost always expressed as margin. In manufacturing and construction, markup is more common. Know which convention your industry uses and stick to it consistently.
A practical rule of thumb
When in doubt, default to margin — it is the more conservative figure and the one accountants use. Target gross margins by category, not markup percentages. Review them quarterly and trace any compression back to cost increases or pricing errors. If your margin is moving without a deliberate pricing decision, something in your cost base has changed and needs investigating.