Margin and markup are not the same number
Margin and markup both describe the profit on a sale, and both are percentages. They divide that profit by different numbers, so the same sale gives two different figures.
The same profit, two bases
Say you buy a product for $60 and sell it for $100. Your profit is $40 either way. Markup divides that profit by the cost; margin divides it by the selling price.
Cost $60, price $100, profit $40 Markup = 40 ÷ 60 × 100 = 66.7% Margin = 40 ÷ 100 × 100 = 40%
Why businesses mix them up
Markup is natural when setting prices: you start from what you paid and add a percentage. Margin is natural in accounts: it tells you what share of each sales dollar is profit. Trouble starts when someone aims for a 40% margin but applies a 40% markup.
Cost $60 with a 40% markup → price $84 Margin on that sale = 24 ÷ 84 = 28.6%, not 40%
Converting between them
You can convert either figure without knowing the actual prices. Express both as decimals:
- Margin = Markup ÷ (1 + Markup). A 50% markup is a 33.3% margin.
- Markup = Margin ÷ (1 − Margin). A 25% margin needs a 33.3% markup.
- Price for a target margin = Cost ÷ (1 − Margin). For a 40% margin on a $60 cost: 60 ÷ 0.6 = $100.
Which one to quote
Say which one you mean. Retail and wholesale pricing often talk in markup, while financial statements and investors use margin. Margin can never reach 100%, so a claim like “150% margin” almost always means markup.
Frequently asked questions
Is gross margin the same as net margin?
No. Gross margin subtracts only the cost of goods. Net margin also subtracts operating costs, interest and taxes, so it is lower.
What does keystone pricing mean?
Selling at double the cost: a 100% markup, which is a 50% margin.