Enter what you know: cost and price, cost and markup, or a target margin. You'll get all five numbers (cost, price, profit, markup, margin) side by side, with the steps shown and the classic markup-as-margin pricing mistake quantified.
Markup and margin are the same dollars with different denominators
Buy something for $40, sell it for $60, and you made $20. Markup and margin are both that same $20 wearing different clothes. Markup divides the profit by what you paid: 20 ÷ 40 = 50%. Margin divides the profit by what you charged: 20 ÷ 60 = 33.33%. Neither is wrong. They answer different questions: markup answers "how do I set a price from a cost," and margin answers "how much of every sales dollar do I keep."
The trouble starts when the words get swapped, because it is never a rounding error. The gap between markup and margin grows with the number: at 20% they differ by about 3 points, at 50% the difference is 17 points, and a 100% markup is only a 50% margin. A business that prices for a "50% margin" by multiplying cost by 1.5 is actually earning 33%, and it will discover that in its year-end accounts rather than at the register.
The formula
Markup = Profit ÷ Cost Margin = Profit ÷ Price
Margin = Markup ÷ (1 + Markup) Markup = Margin ÷ (1 − Margin)
The conversions use decimals (50% = 0.5). To price for a target margin, divide the cost by (1 − margin): that is the one everyone gets backwards, because the natural instinct is to multiply, and multiplying applies the number as a markup.
Worked example
A boutique buys a lamp for $40 and sells it for $60. Profit is $20, which is a 50% markup (20 ÷ 40) but only a 33.33% margin (20 ÷ 60).
Now the owner wants a true 50% margin on that lamp. The price is not $60: it is 40 ÷ (1 − 0.50) = $80, a 100% markup. Multiplying the cost by 1.5 instead, the classic mistake, would leave the shop at $60 and 33.33% while its spreadsheet says 50: a 16.67 point hole in the plan.
Quick reference: markup to margin
| Markup (on cost) | Margin (on price) |
|---|
| 10% | 9.09% |
| 20% | 16.67% |
| 25% | 20% |
| 30% | 23.08% |
| 40% | 28.57% |
| 50% | 33.33% |
| 75% | 42.86% |
| 100% (keystone) | 50% |
| 150% | 60% |
Two asymmetries worth noticing. Markup has no ceiling (a $2 item sold for $20 is a 900% markup), but margin can only approach 100%, because profit can never exceed the price it comes out of. And the same number always means less as a margin than as a markup, which is exactly why the mix-up always costs money in the same direction: the business that confuses them always ends up with less profit than it planned, never more. Retailers' "keystone pricing" (doubling the cost) is the memorable landmark: 100% markup, 50% margin, one plain doubling.
Frequently asked questions
What is the difference between markup and margin?
They describe the same profit with different denominators. Markup divides profit by cost (the pricing tool), margin divides profit by selling price (the health metric). Buy at $40 and sell at $60 and the $20 profit is a 50% markup but a 33.33% margin.
How do I convert markup to margin?
Margin = markup divided by (1 + markup), using decimals. A 50% markup is 0.5 divided by 1.5, which is 33.33% margin. Going the other way, markup = margin divided by (1 minus margin), so a 40% margin is a 66.67% markup.
How do I price a product for a target margin?
Divide the cost by (1 minus the margin as a decimal). For a 50% margin on a $40 cost: 40 divided by 0.5 is $80. The instinct to multiply cost by 1.5 instead applies the number as a markup and quietly delivers only a 33.33% margin.
Why is margin always smaller than markup?
Because the price is always bigger than the cost whenever there is any profit, and margin uses that bigger number as its denominator. The gap grows as the numbers rise: 3 points apart at a 20% markup, 17 points apart at 50%, and at 100% markup the margin is exactly half.
Can a margin be more than 100%?
No. Margin is profit divided by price, and profit can never exceed the price it comes out of, so margin can only approach 100% as the cost approaches zero. Markup has no such ceiling: a $2 trinket sold for $20 carries a 900% markup and a 90% margin.
What is keystone pricing?
The retail tradition of doubling the wholesale cost: a 100% markup, which is exactly a 50% margin. It survives because it is easy mental math and leaves room for discounting, but it is a starting convention rather than a law; plenty of categories cannot support it and plenty of others deserve more.
Is this gross margin or net margin?
Gross. It compares the selling price with the direct cost of the item only. Net margin also subtracts rent, wages, marketing, and everything else it takes to run the business, which is why a shop can have a healthy 50% gross margin and still lose money.
Which should I use, markup or margin?
Use markup when setting prices (it starts from the cost you know) and margin when judging the business (it says how much of each sales dollar you keep, and it is the number accountants, banks, and industry benchmarks all quote). The mistake is not picking one, it is using one word while doing the other one's math.