Markup vs Margin: Key Differences Explained
Understand the difference between markup and margin so you can price products correctly and analyze profitability.
Quick Answer
Markup is profit as a percentage of cost; margin is profit as a percentage of selling price.
| Feature | Markup | Margin |
|---|---|---|
| Percentage added to cost to get selling price | Percentage of selling price that is profit | |
| Based on cost | Based on revenue | |
| Always higher than margin for the same dollar profit | Always lower than markup for the same dollar profit | |
| Formula: (Price - Cost) / Cost | Formula: (Price - Cost) / Price |
Markup is the percentage added on top of your cost to arrive at a selling price. If a product costs $50 and you apply a 100% markup, you sell it for $100. Markup is the go-to metric when setting prices.
Margin is the percentage of the selling price that represents profit. Using the same example, selling at $100 with a $50 cost gives you a 50% margin. Margin is preferred when analyzing profitability and financial statements.
When to Use Markup
- Setting retail prices from wholesale cost
- Communicating pricing strategy to buyers
- Calculating how much to add to cost
When to Use Margin
- Analyzing profitability on income statements
- Comparing profit across products with different prices
- Reporting financial performance to stakeholders
Worked Example
A product costs $40 and sells for $60.
Markup
Markup: ($60-$40)/$40 = 50%.
Margin
Margin: ($60-$40)/$60 = 33.3%.
The same $20 profit is 50% markup but only 33.3% margin.
Related Comparisons
Frequently Asked Questions
Which is bigger for the same product?
Markup is always higher than margin because cost is a smaller base than selling price.
How do I convert between them?
Margin = Markup / (1 + Markup). Markup = Margin / (1 - Margin).
Which do retailers typically use?
Retailers usually think in markup for pricing but report margin on financial statements.