Margin is profit divided by the selling price. Markup is profit divided by the cost.
Same sale, same profit, two different percentages — and markup is always the bigger, more flattering number. Confusing them is one of the most reliable ways to price yourself out of business.
One sale, two numbers
An item costs you 40. You sell it for 100. Your profit is 60.
Margin = 60 ÷ 100 = 60% (profit ÷ selling price)
Markup = 60 ÷ 40 = 150% (profit ÷ cost)Nothing about the transaction changed. Only the denominator did.
Why it matters more than it sounds
Suppose you need a 50% margin — half of every sale is profit — and your product costs 100 to make.
Apply a 50% markup by mistake and you sell at 150. Your profit is 50 out of 150, which is a 33% margin, not 50%.
You are a third short of the profit you planned for, on every unit, forever. And because 150 feels like a healthy price and the shortfall is spread across all your sales, nothing obviously breaks. Revenue looks fine. The money just is not there at the end of the year.
To actually hit a 50% margin on a cost of 100, you need to sell at 200 — a 100% markup.
The conversion table
To get a margin of m%, the markup you need is m ÷ (100 − m) × 100.
| Margin you want | Markup you need | Sell a cost-100 item at |
|---|---|---|
| 10% | 11% | 111 |
| 20% | 25% | 125 |
| 25% | 33% | 133 |
| 33% | 50% | 150 |
| 50% | 100% | 200 |
| 60% | 150% | 250 |
| 75% | 300% | 400 |
The two numbers stay close at the low end and diverge sharply above about 30%. That is exactly why the error survives — at 10% the mistake costs almost nothing, so nobody learns the distinction until the stakes are high.
Which one should you use
Margin, almost always, for anything to do with running the business.
Margin is a share of revenue, so it sits naturally alongside every other figure in your accounts. Your costs, your overheads and your tax are all proportions of revenue too, which means margins can be compared and added up sensibly. It also cannot exceed 100%, which makes it a meaningful measure of health.
Markup is a pricing mechanic — a way of getting from a cost to a price. It is useful at the moment you set a price and misleading almost everywhere else. Markup can exceed 100% freely, which is why it appears so often in sales material.
The mistake to watch for
Never compare a markup to a margin. If a supplier says they work on 40% and your books say you work on 40%, confirm which measure each of you means before drawing any conclusion. One of those businesses is roughly twice as profitable as the other.