Same profit, two ways to size it up
You buy an item for $60 and sell it for $100. The profit is $40 — that number is not in dispute. What changes is what you compare it to:
- Markup: “$40 is what percent of my $60 cost?” →
40 / 60 = 66.7%. - Margin: “$40 is what percent of my $100 price?” →
40 / 100 = 40%.
Same $40. The price is the bigger number, so dividing by it always gives the smaller percentage. Margin is always less than the matching markup.
Markup: profit over cost
Markup is how much you add on top of what you paid:
markup % = (price − cost) / cost × 100
It is the natural number when you set prices — you start from cost and add a percentage.
Margin: profit over price
Margin is the slice of each sale you actually keep:
margin % = (price − cost) / price × 100
It is the number on an income statement, and it can approach 100% but never reach it — profit can never exceed the price you charged.
Converting between them
They are two views of one number, so each converts to the other (as decimals):
margin = markup / (1 + markup)markup = margin / (1 − margin)
On a fixed $60 cost, as the price rises the two numbers pull apart:
| Price | Profit | Markup (÷ cost) | Margin (÷ price) |
|---|---|---|---|
| $75 | $15 | 25% | 20% |
| $90 | $30 | 50% | 33.3% |
| $100 | $40 | 66.7% | 40% |
| $120 | $60 | 100% | 50% |
| $180 | $120 | 200% | 66.7% |
Which one to use
- Markup for pricing. You know the cost and want a price: multiply cost by
(1 + markup). - Margin for reporting and comparison. It is bounded at 100%, it is what P&L statements and investors use, and it is comparable across products and companies with different costs.
- Set prices with markup, judge the business with margin — just never quote one and call it the other.
Common mix-ups
- Quoting a markup as a margin. “We run a 50% margin” when it is really a 50% markup overstates profitability — that is a 33.3% margin.
- “50% margin means I doubled my money.” Doubling your money is a 100% markup, which is a 50% margin. A 50% markup only gets you a 33.3% margin.
- Assuming a margin survives a discount. A 40% margin item sold at 40% off is not break-even at a 0% margin — the discount comes off the price, which is the margin’s own denominator. Work it through with the discount calculator.
- Averaging margins across products. Products with different revenues cannot have their margin percentages averaged; add up the profits and the revenues separately, then divide.
Frequently asked questions
Is a 50% markup the same as a 50% margin?
No. A 50% markup on a $60 cost is a $90 price and a $30 profit, which is a 30 / 90 = 33.3% margin. Markup is always the larger percentage for the same sale.
Can a profit margin be more than 100%?
No. Margin is profit divided by the selling price, and profit cannot exceed the price unless the cost is negative. Markup, which divides by cost, has no upper limit.
How do I convert markup to margin?
Divide the markup by one plus the markup, as decimals. A 66.7% markup is 0.667 / 1.667 = 0.40, a 40% margin. Going the other way, markup = margin / (1 - margin).
My supplier raised the cost 10%. How much do I raise the price to keep the same margin?
More than 10%. Because margin is measured against the price, holding the margin means the price rises by the same 10% as the cost, so the profit per unit also grows. The profit margin calculator's 'find the price' mode does this for a target margin.