Many small businesses mix up margin and markup, and the mistake quietly reduces profit. Both use the same cost and price, but they answer different questions and give different percentages.
The two formulas
- Markup % = (selling price − cost) ÷ cost × 100. It tells you how much you add on top of the cost.
- Margin % = (selling price − cost) ÷ selling price × 100. It tells you how much of each sale is profit.
A worked example
A product costs 800 and you sell it for 1,000.
| Measure | Calculation | Result |
|---|---|---|
| Profit | 1,000 − 800 | 200 |
| Markup | 200 ÷ 800 | 25% |
| Margin | 200 ÷ 1,000 | 20% |
Same sale, two different percentages. A 25% markup is only a 20% margin.
The common mistake
Suppose you want a 30% margin and add 30% to your cost. A product costing 800 is then priced at 1,040, which is a margin of only about 23%. To get a true 30% margin, divide the cost by 0.70: 800 ÷ 0.70 ≈ 1,143.
Quick conversion
| Margin | Markup needed |
|---|---|
| 20% | 25% |
| 30% | about 43% |
| 40% | about 67% |
| 50% | 100% |
Do not forget the other costs
Margin on the product is not your final profit. Rent, salaries, delivery, payment fees, discounts and returns come out of it. Work out your gross margin first, then check what is left after those costs.
Which one should you use?
Use markup when you set prices from costs. Use margin when you report performance and compare products, because it is directly linked to sales. Whichever you choose, say which one you mean when you talk to partners or staff.
Enter your cost and price into the free Profit Margin Calculator to see both numbers instantly.