Markup vs margin: what's the difference?

They sound interchangeable, but markup and margin are two different numbers — and mixing them up is one of the most common (and expensive) pricing mistakes small businesses make.

Two different denominators

Both start from the same gap between what something costs you and what you sell it for. The difference is what you compare that gap to.

Markup measures the gap against your cost. Margin measures the same gap against your selling price. Same dollars, different base — which is why the percentages never match.

An example

Say an item costs you $60 and you sell it for $100. The gap is $40. As markup, that's $40 ÷ $60 = about 67%. As margin, it's $40 ÷ $100 = 40%.

Both describe the exact same sale. A 67% markup and a 40% margin are the same thing seen from two angles.

The expensive mistake

The classic error is deciding you want, say, a 40% margin and then adding 40% to your cost. That's a 40% markup, which only produces a ~29% margin — well short of what you intended.

Do that across a whole catalog and you quietly undercharge on everything, wondering why the profit never shows up.

Which one to use

Use markup when you're pricing up from a known cost — it's the natural way to think about 'cost plus'. Use margin when you're judging profitability, because margin tells you what share of each sale you actually keep.

The free pricing calculator below works in margin terms and prices backwards from the margin you want, so you don't fall into the markup trap.

Questions