What is the difference between margin and markup?

The denominator. Markup is the profit divided by the cost. Margin is the profit divided by the price. The same sale produces two different percentages, and the larger one is always the markup.

Why can I not have a 100% margin?

A 100% margin means the cost is zero. As the target margin approaches 100%, the price required goes to infinity. Markup has no such ceiling, which is another reason the two get confused.

Which should I use when setting a price?

Margin, because it is the number that relates to your revenue and to everyone else's published figures. Use markup when you are applying a rule to a cost, such as a standard multiple on materials.

Margin and Markup Calculator

The two numbers people confuse, side by side, with what the mistake costs.

Price to charge

$72.73

$32.73 of profit on every unit, from a cost of $40.00.

Margin

45.0%

Profit / price

Markup

81.8%

Profit / cost

Profit per unit

$32.73

The same sale, two percentages

Markup81.8%
Margin45.0%

Same price, same cost, same profit. Only the denominator differs: markup measures against what it cost you, margin against what you charged. The markup is always the larger number, which is why it is the one people quote.

The mistake this tool exists for

You want a 45% margin. That means charging $72.73.

Applying 45% as a markup instead gives $58.00, which is a margin of 31.0%, not 45%. That is $14.73 of profit lost on every single unit sold.

45% margin$32.73
45% markup$18.00

Profit per unit, from the same cost. At a thousand units a month the gap between these two bars is the difference between a business that works and one that does not.

What this does

Enter a cost and either the margin you want, the markup you want to apply, or the price you have already set. It returns all three, every time, so there is nothing to convert in your head.

Why this one

Margin and markup are different numbers and are confused constantly, usually by the person setting the price. A 50% markup is a 33.3% margin. Wanting a 40% margin and applying a 40% markup gives you 28.6%, and two fifths of the profit you planned for disappears on every sale. This tool always shows both and prices the mistake in dollars.

The formula

markup  =  (price - cost) / cost           measured against what it cost you
margin  =  (price - cost) / price          measured against what you charged
price for a target margin  =  cost / (1 - margin)

Published so you can check it. A calculator about money that will not show its working is asking to be trusted on the one thing you cannot verify.

Questions

What is the difference between margin and markup?: The denominator. Markup is the profit divided by the cost. Margin is the profit divided by the price. The same sale produces two different percentages, and the larger one is always the markup.
Why can I not have a 100% margin?: A 100% margin means the cost is zero. As the target margin approaches 100%, the price required goes to infinity. Markup has no such ceiling, which is another reason the two get confused.
Which should I use when setting a price?: Margin, because it is the number that relates to your revenue and to everyone else's published figures. Use markup when you are applying a rule to a cost, such as a standard multiple on materials.

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Read about it

Margin and markup are not the same number
A 50% markup is a 33% margin. Aim for a 40% margin, apply 40% as a markup, and you get 28.6% and lose two fifths of the profit you planned for on every sale.

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This tool is for education and planning only and does not constitute financial, legal or tax advice. EmpireSheets is not a regulated adviser. Rates, rules and thresholds change, so check anything time sensitive against a current official source before acting on it.