7 min read · Free educational guide
Definitions
Markup is how much you add on top of cost, relative to cost. Margin (gross margin) is profit relative to selling price. They use different denominators, so the same business can show a 50% markup and a 33.3% margin on the same product.
Formulas
Let cost be C and selling price be P. Profit = P − C.
- Markup % = ((P − C) ÷ C) × 100
- Margin % = ((P − C) ÷ P) × 100
- From markup to price: P = C × (1 + markup/100)
- From margin to price: P = C ÷ (1 − margin/100)
Worked example
Cost $40, sell at $60. Profit = $20. Markup = 20/40 = 50%. Margin = 20/60 ≈ 33.33%. If someone says “we need 50% margin,” pricing from cost is not the same as a 50% markup.
Which should you use?
Retail buyers and some suppliers talk in markup on cost. Finance and profitability analysis usually talk in margin on sales. Be explicit in contracts and dashboards so teams do not mix the terms.
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FAQ
- Can markup and margin ever be equal?
- Only in special cases; in general they differ because one divides by cost and the other by price.
- How do I get price from a target margin?
- Price = cost ÷ (1 − margin/100). For a 25% margin on a $75 cost: 75 ÷ 0.75 = $100.