Why a 30% Markup Is Not a 30% Margin (and How to Convert)

Same profit, two denominators

Profit is the selling price minus the cost. Markup measures that profit against the cost. Margin measures it against the selling price.

markup = (price − cost) ÷ cost × 100

margin = (price − cost) ÷ price × 100The numerator is identical. Only the denominator changes.

Worked example: an item costs 70 and sells for 100. The profit is 30. Markup is 30 ÷ 70 = 42.86%, while margin is 30 ÷ 100 = 30%. Same item, same sale, two correct answers.

Because the price is always larger than the cost, the margin percentage is always smaller than the markup percentage for any profitable sale. Margin also tops out below 100%, since you cannot keep more than the whole price. Markup has no ceiling: selling something for three times its cost is a 200% markup.

Converting between markup and margin

Write both percentages as decimals (30% is 0.30) and use these two relationships:

margin = markup ÷ (1 + markup)

markup = margin ÷ (1 − margin)Use decimals, not percent signs, then convert the answer back to a percentage.

A 30% markup gives a margin of 0.30 ÷ 1.30 = 0.2308, or 23.08%. A 30% margin needs a markup of 0.30 ÷ 0.70 = 0.4286, or 42.86%. The table below covers the values people look up most often.

The gap widens as the percentages grow. At 10% the two figures differ by under a point, but a 100% markup (doubling the cost) is only a 50% margin. That is why the mistake is easy to miss on cheap, low-markup items and costly on products with large markups.

Pricing for a target margin

If your goal is a particular margin, divide the cost by one minus that margin. Multiplying the cost by one plus the margin is the classic mistake.

price = cost ÷ (1 − target margin)For a 40% margin, divide the cost by 0.60.

Worked example: a product costs 45 and you want a 40% margin. The right price is 45 ÷ 0.60 = 75.00. Check it: the profit is 30, and 30 ÷ 75 = 40%. The shortcut of 45 × 1.40 = 63.00 leaves a profit of only 18, which is a margin of 18 ÷ 63 = 28.57%, well short of the target.

The slip is easy to make at larger percentages. A shop that wants a 50% margin and marks a 60 item up by 50% charges 90. The profit is 30, and 30 ÷ 90 = 33.3%. To earn a true 50% margin the price must be 60 ÷ 0.50 = 120, which is a 100% markup.

Going the other way, if you do use a markup, work out what it gives you. A cost of 80 with a 25% markup sells at 100, and the margin is 20 ÷ 100 = 20%. A handy check is that a markup of 100% is always a 50% margin, and a 25% markup is always a 20% margin.

Which one should you quote?

• Margin is the better figure for comparing products, periods or businesses, because it is a share of revenue and sits naturally beside other revenue-based ratios.
• Markup is convenient on a price list or at a shop counter, where staff start from a known cost and need a fast rule such as "cost times 1.5".
• Always say which one you mean. "We run a 40% margin" and "we run a 40% markup" describe very different businesses.
• Check the label on any report you receive. Some reports and spreadsheets call a margin a markup, or the reverse, so confirm the definition before comparing numbers.

To test a price either way, enter your cost and price into the margin calculator and the markup calculator, which show both percentages side by side.

This article is general education about arithmetic, not financial or accounting advice. Taxes, fees and discounts will change your real profit, so check your own figures.