Markup vs Margin: What's the Difference?
Markup and margin are easy to confuse, but they describe two different ways to measure profitability. Getting this wrong can lead to underpricing, missed targets, or pricing that looks profitable but is not.
Start with the Profit Margin Calculator to see both metrics side by side.
The Definitions
Markup is the percentage you add to your cost to set a price.
Margin is the percentage of the selling price that is profit.
Both are useful, but they are not interchangeable.
The Formulas
- Markup % = (Price - Cost) / Cost x 100
- Margin % = (Price - Cost) / Price x 100
If your product costs $60 and you sell it for $100:
- Markup = ($100 - $60) / $60 = 66.7%
- Margin = ($100 - $60) / $100 = 40%
The same price and cost produce two different percentages.
Why It Matters for Pricing
If you target a 40 percent margin but accidentally apply a 40 percent markup, you will underprice. A 40 percent markup on $60 produces a $84 price, which is only a 28.6 percent margin. The gap is large enough to wipe out profit once overhead and fees are included.
Margin is what investors, accounting teams, and financial statements care about. Markup is what many product teams and sales teams use when setting a price. You need to know both.
Related tools: Pricing Calculator and Break-Even Calculator.
When to Use Each
Use markup when:
- You buy inventory or materials and need a quick pricing rule.
- You are setting prices in a spreadsheet and want to stay consistent.
Use margin when:
- You are tracking profitability and comparing against targets.
- You are deciding whether to keep, raise, or cut a price.
- You need to see how much profit is left after costs and fees.
Common Mistakes
- Confusing margin with markup. A 50 percent margin is not a 50 percent markup.
- Ignoring fees. Payment processing, shipping, and returns reduce margin.
- Mixing products. A low-margin product can drag down overall profitability even if revenue looks strong.
A Simple Pricing Checklist
- Confirm your true cost per unit, including packaging and fees.
- Set a target margin based on your industry and growth goals.
- Use a calculator to convert your margin target into a price.
- Recheck your break-even point to confirm volume targets are still realistic.
What to Do Next
Use the tools below to set and validate pricing decisions:
Recommended accounting software: FreshBooks Pro to manage invoices and track margin changes.
Compare platforms that influence your costs and margins:
Shopify vs WooCommerce