Markup and margin are the two most confused terms in business pricing. They both describe the relationship between cost and selling price, but they use different denominators, producing different percentages for the same transaction. Confusing them is one of the most common — and expensive — mistakes in small business.
The Formulas
Markup % = (Price − Cost) / Cost × 100 Margin % = (Price − Cost) / Price × 100 A product costing $60 sold for $100 has a 66.7% markup but only a 40% margin. Same dollars, different percentages.
Why the Confusion Is Costly
If you intend a 40% margin but apply a 40% markup instead, you will price a $60 item at $84 instead of $100. That is $16 less per sale. Across thousands of transactions, this error can destroy profitability. The Markup Calculator converts between markup and margin instantly.
Conversion Table
| Markup % | Margin % | Cost $60 → Price |
|---|---|---|
| 25% | 20% | $75 |
| 33.3% | 25% | $80 |
| 50% | 33.3% | $90 |
| 66.7% | 40% | $100 |
| 100% | 50% | $120 |
When to Use Each
- Markup is useful for pricing individual products from their cost. Retailers commonly think in terms of markup.
- Margin is what appears on financial statements and what investors and analysts use. It shows profit as a percentage of revenue.
Calculate both with the Margin Calculator.
Key Takeaways
- Markup is based on cost; margin is based on price.
- A 50% markup = only a 33.3% margin.
- Confusing them can underprice your products by 15–20%.
- Use margin for financial reporting and markup for setting prices from cost.
Frequently Asked Questions
What is a good profit margin for a small business?
It varies widely by industry. Retail: 2-5% net margin. Software/SaaS: 20-40%. Restaurants: 3-9%. Professional services: 15-25%. The key is to know your industry benchmark and aim to exceed it.
How do I convert markup to margin?
Margin = Markup / (1 + Markup). For example, a 50% markup: Margin = 0.50 / 1.50 = 33.3%. Going the other way: Markup = Margin / (1 - Margin). A 40% margin: Markup = 0.40 / 0.60 = 66.7%.
Is a 100% markup the same as doubling the price?
Yes. A 100% markup means selling at twice the cost. A $50 item with 100% markup sells for $100. However, this gives you only a 50% margin, not 100%.