Same profit, two different percentages
Markup and margin both describe the profit on a sale. The only difference is what you divide by. Markup divides profit by cost. Margin divides profit by the selling price.
Buy a lamp for $60 and sell it for $100. The profit is $40 either way. As a markup it's $40 / $60 = 66.67%. As a margin it's $40 / $100 = 40%. Both numbers are right. They just answer different questions.
Formula notes
Markup = profit / cost x 100Margin = profit / selling price x 100
When each one is the right tool
Markup is a pricing tool. If you know your cost and want a simple rule for setting prices, markup is easy to apply: multiply cost by 1.5, or by 2. That's why shops and trades often talk in markups. Doubling the wholesale cost is common enough in retail to have a name, keystone pricing.
Margin is a reporting tool. Income statements and most business targets talk about profit as a share of sales, because sales is the number everything else gets compared with. When a lender, an investor or your accountant says "margin", they mean profit over revenue.
Converting markup to margin and back
You don't need the prices to convert. To turn a markup into a margin, divide the markup by 100 plus the markup. To turn a margin into a markup, divide the margin by 100 minus the margin.
A 25% markup is 25 / 125 = 20% margin. A 40% margin is 40 / 60 = 66.67% markup. Notice how fast markup grows as margin rises. A 60% margin needs a 150% markup, and a 75% margin needs a 300% markup.
Formula notes
Margin % = markup % / (100 + markup %) x 100Markup % = margin % / (100 - margin %) x 100
The costly mix-up
The classic mistake goes like this. A business wants a 40% margin, so it adds 40% to cost. On a $60 item that's an $84 price and $24 of profit, which is a 28.57% margin. The target was missed by more than 11 points on every sale.
It also happens in reverse when someone reports a markup as a margin. A team that "makes 50%" on cost is making 33.33% of sales. If rent and wages take 30% of sales, there's very little left. Always say which one you mean, and check which one a target is written in.
Setting a price from a target margin
If your goal is written as a margin, skip markup entirely and divide. Price = cost / (1 - margin). A $60 cost at a 40% margin needs a $100 price. Check: $40 of profit over $100 is 40%.
If your goal is a markup, multiply. Price = cost x (1 + markup). Real prices also need to cover selling fees and any discount you plan to run. Our markup calculator handles both, grossing up the price so the markup you chose is still there after fees and discounts.
Frequently asked questions
Which is higher, markup or margin?
Markup, whenever there's a profit. Both use the same profit, but markup divides by cost, which is always smaller than the selling price on a profitable sale.
Why do retailers use markup instead of margin?
Markup is quick to apply at the till or on a price list: multiply cost by a fixed number. Margin is better for comparing profit with sales across a business.
What is keystone pricing?
It's a retail rule of thumb that doubles the wholesale cost to set the price. That's a 100% markup and a 50% margin.
How do I convert a 30% margin into a markup?
Divide 30 by 70 and multiply by 100. A 30% margin is a 42.86% markup, so a $70 cost would sell for $100.
Can margin ever be higher than markup?
No. With a profit, markup is higher. With a loss, both are negative and the margin is the more negative one, because the loss is divided by a smaller selling price. They only match at zero profit.
References
These sources support the method or guidance used for Markup Calculator. Verify time-sensitive rules at the source.
Try the calculator
Open Markup Calculator, enter your scenario, and compare its supporting rows with this guide's method and checks.