What is the difference between markup and margin?
Markup and margin both measure the relationship between product cost and selling price, but they use different denominators:
- Markup is the percentage added on top of your cost:
(Price − Cost) ÷ Cost. - Margin is the percentage of your selling price that is profit:
(Price − Cost) ÷ Price.
Because margin divides profit by the higher selling price, margin is always lower than markup for any profitable transaction. Confusing these two figures is one of the most common pricing mistakes in retail, manufacturing, and contracting.
Conversion formulas
You can convert between markup and margin using these mathematical identities:
$$\text{Margin} = \frac{\text{Markup}}{1 + \text{Markup}}$$ $$\text{Markup} = \frac{\text{Margin}}{1 - \text{Margin}}$$ $$\text{Price from Cost & Markup} = \text{Cost} \times (1 + \text{Markup})$$ $$\text{Price from Cost & Target Margin} = \frac{\text{Cost}}{1 - \text{Margin}}$$
Quick conversion reference table
Use this standard conversion lookup table to compare markup and margin percentages:
| Markup on Cost | Equivalent Gross Margin | Cost Example | Selling Price | Profit |
|---|---|---|---|---|
| 10.0% | 9.1% | $100.00 | $110.00 | $10.00 |
| 20.0% | 16.7% | $100.00 | $120.00 | $20.00 |
| 25.0% | 20.0% | $100.00 | $125.00 | $25.00 |
| 33.3% | 25.0% | $100.00 | $133.33 | $33.33 |
| 50.0% | 33.3% | $100.00 | $150.00 | $50.00 |
| 66.7% | 40.0% | $100.00 | $166.67 | $66.67 |
| 100.0% | 50.0% | $100.00 | $200.00 | $100.00 |
| 150.0% | 60.0% | $100.00 | $250.00 | $150.00 |
| 200.0% | 66.7% | $100.00 | $300.00 | $200.00 |
The classic 50% pricing trap explained
Imagine a boutique store owner buys a handcrafted bag for $60 wholesale. The owner wants a 50% profit margin and mistakenly applies a 50% markup:
- Flawed calculation (applying 50% markup):
$60 × 1.50 = $90selling price. - Actual realized margin:
$30 profit ÷ $90 selling price = 33.3%. - The shortfall: The owner intended to keep 50% of the customer's payment, but only kept 33.3%.
The correct calculation for a 50% margin:
$$\text{Price} = \frac{$60}{1 - 0.50} = \frac{$60}{0.50} = $120$$ Selling at $120 yields $60 profit on a $120 sale—delivering the intended 50.0% margin.
When should you use markup vs. margin?
- Use Markup for internal cost-plus pricing: Manufacturers and trade contractors typically start with direct labor and materials costs, then apply a standardized markup multiplier (e.g., cost + 40%) to quote jobs.
- Use Margin for financial reporting and discounting: Business planning, income statements, and promotional discount strategies must use margin. If you have a 33% gross margin and offer a 35% discount, you lose money on every sale.
Frequently asked questions
Can markup exceed 100%?
Yes. Any selling price that is more than double the cost has a markup greater than 100%. For example, an item costing $20 sold for $60 has a 200% markup.
Can gross margin exceed 100%?
No. Margin is the proportion of selling price that represents profit. Because profit cannot exceed the total selling price (unless costs were negative), margin can never reach or exceed 100%.
Why do retailers talk about "keystone pricing"?
"Keystone" is traditional retail terminology for applying a 100% markup on cost, which corresponds exactly to a 50% gross margin.
Related Calculators & Guides
Explore related tools to analyze your financials from every angle:
- Break-Even Calculator — Find how many units you must sell to cover costs. Add a target profit, see every step, and keep your numbers private.
- Profit Margin Calculator — Work out gross, operating and net margin from revenue and costs, or find the price that hits a target margin. Steps shown.
- Percentage Change Calculator — Calculate percent increase, decrease or difference between two numbers, with Excel formulas and worked examples.
Deep Dive Guides: