Profit Margin vs Markup
Margin and markup both describe profit as a percentage, but they use different bases — and mixing them up is one of the most common pricing mistakes a small business can make. This guide sets out the difference, the formulas, and a conversion table you can rely on.
The short answer
Markup is profit expressed as a percentage of the cost. Margin is profit expressed as a percentage of the selling price. Because the selling price is always larger than the cost, the same profit gives a lower percentage as margin than as markup. A 25% markup is a 20% margin — not the same number at all.
The formulas
Markup = (Profit ÷ Cost Price) × 100
Margin = (Profit ÷ Selling Price) × 100
Notice the only difference is the number you divide by. Markup divides profit by the cost; margin divides profit by the selling price. That single choice changes the result.
A worked example
£10 profit on a £40 cost
You buy for £40 and sell for £50, so your profit is £10. Markup = (10 ÷ 40) × 100 = 25%. Margin = (10 ÷ 50) × 100 = 20%. Same £10 profit, two different percentages.
This is why a supplier quoting “25%” can mean something different from a retailer quoting “25%” — one may be talking markup, the other margin. Always check which.
Converting between margin and markup
If you know one and need the other, use these conversions:
Markup = Margin ÷ (1 − Margin ÷ 100)
Margin = Markup ÷ (1 + Markup ÷ 100)
For example, a 20% margin gives a markup of 20 ÷ (1 − 0.20) = 25%. A 25% markup gives a margin of 25 ÷ 1.25 = 20%.
A quick conversion table
| Markup | Margin | On a £40 cost, sell for |
|---|---|---|
| 25% | 20.0% | £50.00 |
| 50% | 33.3% | £60.00 |
| 100% | 50.0% | £80.00 |
| 150% | 60.0% | £100.00 |
Which should you use?
Either works if you are consistent. Markup is simpler to apply to cost — you start from what you paid and add a percentage, which is why many retailers use it. Margin reflects what you actually keep from each sale, which is why many service businesses and finance teams prefer it.
The danger is mixing the two. If you set prices using markup but report performance using margin (or vice versa) without converting, your numbers will not tell you what you think they do.
Try the calculators
Use the markup calculator to set a selling price from cost and markup, or the profit margin calculator to work out a margin from cost and revenue — and to find the price you need to hit a target margin.
Calculators for this guide
Keep reading
Browse the full list of guides or all calculators for more tools and explanations.