What is the difference between markup and margin?
Both start from the same profit: the selling price minus what the item cost you. Markup is the profit as a share of the cost. Margin is the profit as a share of the selling price. Because the price is bigger than the cost, the margin is always the smaller number.
Mass.gov's example: a product that costs $7.50 and sells for $10.00 makes $2.50. That is a 33% markup but a 25% margin.
Source Mass.gov · Chapter 4: Calculating costs and setting a price ↗
Mixing them up costs money. Penn State Extension describes a farm market that needs a 30% margin and adds 30% to its costs: a $1.00 item sells for $1.30, and the $0.30 profit is only 23% of the price. To make 30% on the price, that item has to sell for $1.43.
Source Penn State Extension · What's the difference between markup and profit? ↗
How to calculate markup and margin
Here it is with your numbers:
- Profit: $10.00 − $7.50 = $2.50.
- Markup: $2.50 ÷ $7.50 × 100 = 33.33%.
- Margin: $2.50 ÷ $10.00 × 100 = 25.00%.
It means you keep $0.25 of every $1.00 you take in, which is $0.33 on top of every $1.00 of cost.
Prices are rounded to the cent, so at the rounded price the markup or margin can be a few hundredths of a percent off the one you entered.
Margin to markup chart
The same profit, written both ways. A row is highlighted when your margin matches it.
| Margin | Markup |
|---|---|
| 10.00% | 11.11% |
| 15.00% | 17.65% |
| 20.00% | 25.00% |
| 25.00% | 33.33% |
| 30.00% | 42.86% |
| 35.00% | 53.85% |
| 40.00% | 66.67% |
| 50.00% | 100.00% |
| 60.00% | 150.00% |
| 75.00% | 300.00% |
How to convert markup to margin
You don't need the cost or the price, only the percentage. Write it as a decimal (30% is 0.3), then:
- Margin = Markup ÷ (1 + Markup). A 25% markup is 0.25 ÷ 1.25 = 0.2, a 20% margin.
- Markup = Margin ÷ (1 − Margin). A 20% margin is 0.2 ÷ 0.8 = 0.25, a 25% markup.
Both follow from the definitions of markup and margin on cost and on price.
Gross margin and net margin
This calculator works out gross margin: the price minus the cost of the item itself. Your overheads, like rent, insurance, staff and advertising, still have to come out of it. What is left after those is the net margin.
Discounts also come out of the margin. In Mass.gov's example, 10% off the $10.00 price drops the margin from 25% to about 17%, because the item still costs $7.50 to make.
FAQs
What is the difference between 30% margin and 30% markup?
A 30% markup adds 30% of the cost: a $100 item sells for $130.00. A 30% margin means 30% of the selling price is profit, so the same item has to sell for $142.86. Markup is based on cost, margin on the selling price.
Source Mass.gov · Chapter 4: Calculating costs and setting a price ↗
Is 20% margin the same as 25% markup?
Yes. An item that costs $80 and sells for $100 makes $20: $20 is 25% of the $80 cost and 20% of the $100 price.
Is 50% margin 100% markup?
Yes. Selling for $100 something that cost $50 makes $50 profit, which is 100% of the cost and 50% of the price. A 100% markup doubles the cost.
What margin is a 33% markup?
24.81%. Divide the markup by 1 plus the markup: 0.33 ÷ 1.33 = 0.2481. A $100 item marked up 33% sells for $133, and $33 is 24.81% of $133.
What is a 20% markup on $100?
$120.00. Multiply the cost by the markup and add it to the cost: $100 × 20% + $100 = $120. The profit is $20, which is a 16.67% margin.
Source Penn State Extension · What's the difference between markup and profit? ↗
How do you add 40% markup to a price?
Multiply the cost by 1.4. A $50 cost plus 40% is $50 × 1.4 = $70.00. That is a 28.57% margin, not 40%.
Sources
- Mass.gov: Chapter 4: Calculating costs and setting a price
- Penn State Extension: What's the difference between markup and profit?