Margin vs markup: the difference, with examples
Markup is profit divided by cost. Margin is profit divided by price. The same sale always has a higher markup than margin: buy at $60 and sell at $100, and you have a 66.7% markup but a 40% margin.
The two formulas
| Formula | Answers the question | |
|---|---|---|
| Markup | (Price − Cost) ÷ Cost | How much did I add on top of what I paid? |
| Margin | (Price − Cost) ÷ Price | How much of each sale do I keep? |
Worked example
A shop buys a jacket for $80 and sells it for $120. Profit is $40.
- Markup = $40 ÷ $80 = 50%
- Margin = $40 ÷ $120 = 33.3%
Both numbers are right. They measure the same $40 against different bases.
Which one should you use?
- Use margin for targets, reports and comparisons. Financial statements show gross margin, lenders and investors ask for it, and it can't exceed 100%, which makes businesses easy to compare.
- Use markup when setting prices from a cost, such as "cost plus 40%". It's quick at a counter or in a quote, but convert to margin before you judge whether the price is good enough.
The mistake that costs money
If you want a 40% margin and add 40% to cost, you get a 28.6% margin. On $500,000 of sales that's about $57,000 less gross profit than planned. To hit a margin, divide: Price = Cost ÷ (1 − Margin).
| Target margin | Markup you need | Margin if you add the target as markup |
|---|---|---|
| 20% | 25% | 16.7% |
| 30% | 42.9% | 23.1% |
| 40% | 66.7% | 28.6% |
| 50% | 100% | 33.3% |
| 60% | 150% | 37.5% |
Converting between them
- Margin = Markup ÷ (1 + Markup)
- Markup = Margin ÷ (1 − Margin)
See every value from 5% to 300% in the markup to margin chart.
Gross margin, net margin and fees
The formulas above give gross margin on one product. Card processing, marketplace commission, shipping and packaging come out of each sale too. If a marketplace takes 15% of the price, a 40% gross margin becomes 25% before shipping. Price for the margin you keep: Price = (Cost + other costs) ÷ (1 − Margin − Fee %).
Last reviewed 27 September 2026.