Margin vs markup, and why a 50% markup is not a 50% margin

You buy something for £100 and sell it for £150. Is that a 50% margin or a 50% markup? It is a 50% markup and a 33% margin, and the difference between those two words has quietly under-priced a lot of products.

The two definitions

Markup is the amount added to the cost, expressed as a percentage of the cost.

markup = (price − cost) ÷ cost

Margin is the profit as a share of the selling price.

margin = (price − cost) ÷ price

Same profit, different denominator. Because the price is always bigger than the cost, the margin on any sale is always a smaller number than the markup. At small percentages they are close (a 10% markup is a 9.1% margin); as they grow, they diverge fast:

A 100% margin is impossible; it would mean the item cost nothing. A 100% markup is just doubling the price.

Why it matters

Accountants, investors and most business plans talk in margin: "we run at a 40% gross margin". Suppliers, retailers and trade pricing talk in markup: "we mark up 40% on cost". If your plan says you need 40% margin and your pricing spreadsheet applies 40% markup, every sale delivers 28.6% margin and the business is 11 points short of its own target without anyone noticing.

The margin vs markup converter converts either way for any unit cost, so you can check what the number you were given actually means before you build a price list on it.

Pricing from a target margin

If you are working from a margin target, do not add the percentage to the cost. Divide instead:

price = cost ÷ (1 − margin)

For a £100 cost and a 40% margin: £100 ÷ 0.6 = £166.67. Adding 40% would have given £140 and a margin of only 28.6%. The margin calculator does this in both directions: enter cost and price to see the margin, or cost and target margin to get the price.

If you genuinely price by markup, the markup calculator gives the sale price from cost and markup, and shows the matching margin alongside so you always see both.

Discounts eat margin faster than you think

A discount comes off the price, so it eats into margin directly. Take the £166.67 item at 40% margin and offer 15% off: the price becomes £141.67, the profit falls from £66.67 to £41.67, and the margin falls to 29.4%. The discount was 15%, but the profit fell by 37.5%. Stacked offers ("20% off, plus a further 10% at checkout") are worse than they look because the second percentage is applied to an already reduced price, so 20% + 10% is a 28% discount, not 30%. The discount calculator works out the real final price and what stacked discounts amount to.

Tax gets in the way of both

Margin and markup are both calculated on net prices, before sales tax or VAT. If you are looking at a gross retail price and want the margin, take the tax off first.

The one-line version

Margin is profit over price; markup is profit over cost. When someone gives you a percentage, ask which one, and convert before you use it.