Markup vs margin: why they are not the same number
Adding 30% to cost does not earn a 30% margin. It earns 23%. The gap is small on paper and large across a year.
The short answer
Markup is the amount added to cost, expressed as a percentage of cost. Margin is the profit kept, expressed as a percentage of the selling price. Because the two use different denominators, markup is always the larger number: to earn a margin of m, the markup must be m / (1 - m).
The formula
price = cost x (1 + markup)
margin = (price - cost) / price
markup = (price - cost) / cost
markup needed for a target margin = margin / (1 - margin)
A target margin of 100% is impossible at any price, because margin is a share of the price and profit can never exceed it. If a calculator returns a number for a 100% target, it is wrong.
Worked example
An item costing $18.40, where you want to keep 45% of the selling price:
markup needed = 0.45 / (1 - 0.45) = 0.818 → 81.8%
price = 18.40 x 1.818 = 33.45
check: (33.45 - 18.40) / 33.45 = 45.0%
if you had marked up 45% instead: 18.40 x 1.45 = 26.68
that price earns (26.68 - 18.40) / 26.68 = 31.0%
Marking up by the target instead of converting it left $6.77 on the table per unit — a third of the intended profit, on every sale, invisibly.
The gap widens as the target rises
At a 10% target the difference between markup and margin is about one point. At 50% it is fifty points: a 50% margin requires a 100% markup, or doubling cost.
This is why the error tends to be discovered by businesses aiming high rather than low. A trade running on 15% barely notices; one aiming for 60% and marking up 60% is earning 37.5% and cannot work out where the money went.
Which one to quote, and to whom
Talk to suppliers and estimators in markup, because they work from cost upwards. Talk to accountants, investors and yourself in margin, because that is what the accounts report and what comparisons across businesses use.
The practical rule: set targets in margin, apply them as markup. Setting a target in markup means you have not actually decided what you want to earn.
What this leaves out
- Cost means fully loaded cost. If overhead is not in it, the margin you calculate is gross margin, not profit.
- Ignores discounts, returns and payment fees, each of which reduce the margin actually realised.
- One unit at a time. Volume pricing and tiered costs need the calculation per tier.
This arithmetic is free to run in your browser — no signup, nothing held back.
Open the free calculatorCommon questions
- What markup gives a 50% margin?
- One hundred percent — you double the cost. The formula is markup = margin / (1 - margin), so 0.5 / 0.5 = 1.0. This is the single most common place the two get confused, because a 50% markup earns only a 33.3% margin.
- Can margin be over 100%?
- No. Margin is profit as a share of the selling price, so it approaches 100% as cost approaches zero but can never reach or exceed it. Markup has no upper limit.
- Which do retailers use?
- Both, in different rooms. Buying and pricing decisions are usually made in markup because they start from what the item cost, while performance is reported in margin because that is what the accounts and comparisons use.
Spreadsheets that do this
The formulas above, already built and checked — so you fill in your numbers rather than the arithmetic.
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Last reviewed 22 August 2026