By Jessica MartinezTwo people can look at the exact same $25 profit on the exact same $75 sale and report two different percentages, both correct, because markup and margin measure that profit against different bases. Knowing which one someone means, before you agree to a pricing target, saves an argument later.
Markup = (Selling Price - Cost) / Cost x 100. Margin = (Selling Price - Cost) / Selling Price x 100. A product costing $50 that sells for $75 has a 50% markup and a 33% margin. The markup number is always larger, which is probably why it gets used when sellers want to feel better about their pricing.
| Markup | Margin | |
|---|---|---|
| Formula | (Price - Cost) / Cost | (Price - Cost) / Price |
| Cost $50, Price $75 | 50% | 33.3% |
| Cost $40, Price $100 | 150% | 60% |
| Cost $80, Price $100 | 25% | 20% |
If your target is a 30% margin and you price using a 30% markup, you are underpricing every product. A 30% markup produces a 23% margin. The gap compounds across thousands of transactions before anyone notices. This is why finance teams and sales teams occasionally have different feelings about the same pricing strategy.
Margin to markup: Markup = Margin / (1 - Margin). For a 40% margin: 0.40 / 0.60 = 66.7% markup. That is the markup you need to actually hit the margin target.
Markup to margin: Margin = Markup / (1 + Markup). A 50% markup: 0.50 / 1.50 = 33.3% margin. If someone tells you they price at 50%, ask which one.
Margins work better for reporting profitability, comparing to industry benchmarks, and setting business-level gross margin targets. Markups work better in day-to-day pricing: you know your cost and need a price. Either way, the resulting margin should always be visible so you know what the business actually earns per sale.
The Gross Margin Calculator flips between markup and margin so you don't have to do the algebra by hand.
Markup divides profit by cost. Margin divides profit by selling price. A product costing $60 sold for $100 has a 66.7% markup ($40/$60) and a 40% margin ($40/$100). For any given transaction, margin is always the smaller number. The difference grows as price climbs further above cost.
Markup % = ((Selling Price - Cost) / Cost) x 100. Cost $25, price $40: ($40 - $25) / $25 x 100 = 60% markup. To set price from a markup target: Price = Cost x (1 + Markup%). For a 50% markup on a $30 cost: $30 x 1.50 = $45, giving a 33.3% margin.
Margin = Markup / (1 + Markup). With a 50% markup: 0.50 / 1.50 = 33.3% margin. In percentage form: 50 / 150 x 100 = 33.3%. Run it the other way for margin to markup: Markup = Margin / (1 - Margin).
Markup = Margin / (1 - Margin) = 0.30 / 0.70 = 42.9%. To hit a 30% margin you need to mark up your cost by roughly 43%. The 13-point gap between markup and margin target is where pricing surprises come from.
Jessica Martinez spent six years as a credit analyst before deciding the spreadsheets had better stories than the meetings. She writes about lending, insurance, and the fine print everyone scrolls past, ideally before you sign it.
