Margin vs Markup — Telling Them Apart with Cost, Price and Profit
The difference between margin (profit ÷ price) and markup (profit ÷ cost), the formula for setting a price from a target margin, a conversion table and common mistakes.
If two people understand 'let's sell with a 30% margin' differently, they end up with different prices. One adds 30% to the cost, while the other wants 30% of the selling price to be profit. The first is markup; the second is margin.
Definitions
- Profit = selling price − cost
- Margin (profit margin) = profit ÷ selling price × 100
- Markup (cost-plus rate) = profit ÷ cost × 100
With a cost of $70,000 and a selling price of $100,000, the profit is $30,000. The margin is 30,000 ÷ 100,000 = 30%, and the markup is 30,000 ÷ 70,000 ≈ 42.86%. Same deal, different numbers.
Setting a price from a target margin
If the cost is $70,000 and you want a 30% margin, do not add 30% to the cost ($91,000). Calculate it like this:
Selling price = cost ÷ (1 − margin)
70,000 ÷ 0.7 = $100,000. Selling at $91,000 gives a profit of $21,000, a margin of only about 23.1%.
Setting a price from a markup
Selling price = cost × (1 + markup)
A cost of $70,000 with a 50% markup gives $105,000.
Conversion formulas
Markup = margin ÷ (1 − margin)
Margin = markup ÷ (1 + markup)
| Margin | Markup |
|---|---|
| 10% | 11.11% |
| 20% | 25% |
| 25% | 33.33% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100% |
| 60% | 150% |
| 75% | 300% |
Margin can never exceed 100% (even if the whole price were profit, it would be 100%), but markup can grow without limit.
Which one to use
- Margin shows profitability relative to revenue, so it suits income statements and business comparisons.
- Markup is handy for setting prices quickly from cost, so it is widely used in wholesale and retail.
- When someone says '30% margin' in a conversation or contract, always confirm which one they mean.
Together with VAT
Margin is usually calculated on the amount excluding VAT (net amount). If the consumer price is $11,000 (VAT included) and the cost is $7,000 (net), revenue is $10,000, profit is $3,000 and the margin is 30%. Calculating on $11,000 inflates the margin.
Discounts and margin
Discounting a 30%-margin product by 20% does not just cut profit by 20%. If the price goes from $100,000 to $80,000 and the cost is $70,000, profit falls from $30,000 to $10,000 — one third. Always calculate the post-discount margin before running a sale.
Try it in the calculator
In the Margin tab, choose a calculation mode to see selling price, profit, margin and markup at once, and use the converter below to switch between margin and markup.