The short answer
Markup is profit as a percentage of cost. Margin is profit as a percentage of the selling price. Buy something for $30 and sell it for $50: the $20 profit is a 66.7% markup but a 40% margin. Same sale, two very different percentages — which is exactly why mixing them up costs businesses money.
Here's a common way it goes wrong. A shop owner wants a 40% margin, so they add 40% to the cost. An item costing $30 goes out at $42. But $12 profit on a $42 price is a 28.6% margin, not 40%. Across a whole product range, that gap is the difference between a healthy business and one that never quite covers its bills.
On this page
The formulas
- Markup = (price − cost) ÷ cost × 100
- Margin = (price − cost) ÷ price × 100
- Price for a target margin = cost ÷ (1 − margin). For 40%: $30 ÷ 0.6 = $50.
- Price for a target markup = cost × (1 + markup). For 40%: $30 × 1.4 = $42.
Margin to markup conversion table
| Margin you want | Markup needed |
|---|---|
| 20% | 25% |
| 25% | 33.3% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% |
Margin can never reach 100% — that would mean the whole price is profit and the item cost nothing. Markup has no ceiling: a 300% markup just means selling at four times the cost.
Which one should you use?
- Margin is what accountants, investors and most financial reports use. It answers “how much of every sale do we keep?” — handy when comparing with overheads, which are also measured against revenue.
- Markup is convenient for pricing on the shop floor: take the cost, add a percentage, done. Many retailers and trades price this way.
How discounts eat margin
Discounts come off the price, so they hit margin hard. An item with a 40% margin ($30 cost, $50 price) put on a 20% sale sells for $40 — and the margin falls to 25%. A 40% discount would wipe the profit out entirely.
Stacked discounts are another trap: “20% off, plus an extra 10% at the till” is 28% off, not 30%, because the second discount applies to the already-reduced price. The discount calculator handles stacking and tax, and our percentage change guide shows how to work back to an original price.
Gross margin vs net margin
Everything above is gross margin — price minus the direct cost of the item. Net margin takes off everything else too: rent, wages, software, marketing and tax. A shop with a healthy 50% gross margin can still have a thin net margin once those are paid, so price with your overheads in mind, not just the product cost.
Frequently asked questions
What's the difference between margin and markup?
Markup is profit divided by cost; margin is profit divided by price. A $30 item sold for $50 has a 66.7% markup and a 40% margin.
Is a 50% markup a 50% margin?
No. A 50% markup gives a 33.3% margin. To get a 50% margin you need a 100% markup — selling at double the cost.
How do I calculate the selling price from margin?
Divide the cost by (1 − margin). For a 25% margin on a $60 cost: $60 ÷ 0.75 = $80.
What is a good profit margin?
It varies hugely by industry — grocery retail can run on low single-digit net margins while software can be far higher. Compare with businesses like yours.
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The team behind OnlineToolPro. We write guides from building and testing these tools, and check platform rules against official documentation such as YouTube Help. When something changes, we update the article and its date.