A shop owner marks a product up 40% and assumes they're keeping 40% of the sale as profit. They're not — they're keeping about 29%. Margin and markup are built from the same cost and price, but they divide by different numbers, and mistaking one for the other silently erodes profit on every sale.
Two views of the same gap
Both describe the gap between what something costs you and what you sell it for. The difference is the base they compare that gap against — and that single choice is what separates the two figures.
- Markup = (price − cost) ÷ cost × 100. It measures profit as a percentage of what you paid.
- Margin = (price − cost) ÷ price × 100. It measures profit as a percentage of what you charged.
- Because price is always bigger than cost, margin is always the smaller percentage.
A 50% markup is only a 33% margin
Buy at £10, mark up 50%, and you sell at £15. Your profit of £5 is 50% of the £10 cost (markup) but only 33% of the £15 price (margin). Quote the wrong one to an investor or a spreadsheet and every downstream number is off.
Markup Calculator
Enter cost and price to see markup and margin side by side, so you never confuse them.
When to use which
Markup is a pricing tool: it tells you how much to add to a known cost to hit a target. Margin is a performance measure: it tells you what share of revenue you actually keep, which is how profitability is reported and compared. Retailers often think in markup at the shelf but report in margin to the accountant — and the translation between them has to be exact.
Convert cleanly
To turn a target margin into the markup you need: markup = margin ÷ (1 − margin). A 40% margin requires a 67% markup. Set prices from the markup, judge the business by the margin.
Same cost, same price, two different denominators. Keep markup for setting prices and margin for measuring profit, convert between them deliberately, and you stop leaving money on the table one sale at a time.