Profit Margin vs Markup: What's the Difference?

Profit margin and markup both describe the same profit, measured against different bases. Margin = profit ÷ selling price, while markup = profit ÷ cost. If an item costs $60 and sells for $100, the $40 profit is a 40% margin and a 66.67% markup. The Profit Margin Calculator shows both numbers from revenue and cost, so you can see the gap for your own prices.

Margin vs markup at a glance

Both start from the same number, profit = price − cost. The only thing that changes is what you divide by. Cost is smaller than price, so dividing by cost always gives the bigger percentage.

The conversion formulas

Write the percentages as decimals (40% = 0.40):

Margin = Markup ÷ (1 + Markup)
Markup = Margin ÷ (1 − Margin)

For example, a 50% markup is 0.5 ÷ 1.5 = 33.33% margin. A 40% margin target needs a 0.4 ÷ 0.6 = 66.67% markup.

Conversion table

Notice how quickly the gap widens. At low percentages the two are close, but a 75% margin needs a 300% markup.

Worked examples

Example 1: the same sale, two percentages

Cost $80, price $120.

• Profit = $120 − $80 = $40
• Margin = $40 ÷ $120 = 33.33%
• Markup = $40 ÷ $80 = 50%

Say a supplier asks "what's your markup?" and you answer with your margin. You've just understated your pricing by 16.67 percentage points.

Example 2: hitting a margin target with markup pricing

Your business plan calls for a 40% margin, but your team prices by adding a markup to cost. An item costs $60.

• Wrong: a 40% markup gives $60 × 1.40 = $84, profit $24, margin $24 ÷ $84 = 28.57%
• Right: a 66.67% markup gives $60 × 1.6667 ≈ $100, profit $40, margin 40%

You can get the same answer directly from the Target margin tab of the Profit Margin Calculator: enter $60 for Cost and 40 for Target margin (%), and Required revenue comes back as $100.

Example 3: what a discount does to both

Price $100, cost $60. That's a 40% margin and a 66.67% markup. Run a 10% sale:

• New price = $90, profit = $30
• Margin drops to 33.33%, markup drops to 50%
• Profit per unit fell from $40 to $30, which is 25% less profit from a 10% price cut

Use the Discount Calculator to get the sale price, then put that price and your cost into the margin calculator to see what you actually keep.

When to use margin

• Comparing products or services. Margin is a share of revenue, so you can compare a $5 item with a $500 one on the same scale.
• Financial reporting and targets. Gross margin is the standard measure in income statements and business plans. When someone asks about "profitability," they usually mean margin.
• Checking a finished price. Once a price exists, margin tells you how much of each sale covers overhead and profit.

For step-by-step instructions, see how to calculate profit margin.

When to use markup

• Pricing from cost. Retail, wholesale, and manufacturing often start from a cost and add a percentage. Markup is the natural way to think about that.
• Quick quotes. "Cost plus 50%" is easy to say and easy to calculate on the spot.
• Working with suppliers. Wholesale price lists and distributor agreements are often written in markup terms.

The Markup Calculator handles both directions. Its Cost + markup % tab gives you a selling price, and its Cost + selling price tab tells you the markup you're already using. It also shows the margin, so you can check one against the other. The markup guide goes through more examples.

Common mistakes

Mixing the two in one conversation. Pick one, say which one it is ("40% margin" or "40% markup," never just "40%"), and stick with it in quotes, spreadsheets, and contracts.

Assuming they're interchangeable at small percentages. A 10% markup is a 9.09% margin, which is close enough for a rough estimate. At 50% and above the gap is too large to ignore.

Using a markup percentage as the sale discount limit. Mark a $100 cost up 50% to $150, and a 50% discount takes you to $75, below cost. The safe maximum discount is your margin, not your markup. Here that's 33.33%, which brings the price back to exactly $100 with zero profit.

Leaving costs out. Both percentages are only as accurate as the cost figure. Include shipping, fees, and packaging, or both numbers will look better than reality.

Spreadsheet formulas

With price in B2 and cost in C2 (Excel or Google Sheets):

Margin:               =(B2-C2)/B2
Markup:               =(B2-C2)/C2
Markup → margin (D2): =D2/(1+D2)
Margin → markup (E2): =E2/(1-E2)

Which calculator to use

All three run in your browser. The numbers you enter aren't sent to a server. When the price is final, the Invoice Generator turns it into a PDF invoice. For the full workflow from pricing to billing, see the free business tools guide.