- Markup is a fraction of cost. Margin is a fraction of selling price.
- Margin is always smaller than the equivalent markup.
- Pick one convention per channel and document it — never mix.
- Margin is bounded below 100%. Markup is not.
The two formulas
Same profit, different bases. Selling price is always larger than cost (if you're profitable), so margin is always smaller than the equivalent markup.
- Markup% = Profit ÷ Cost × 100
- Margin% = Profit ÷ Selling price × 100
Worked example
Cost $10. Apply a 50% markup → selling price $15, profit $5.
That same $5 profit on a $15 selling price is only a 33.3% margin.
Selling at "50% margin" instead would mean a price of $20 (cost ÷ (1 − 0.50)) and $10 profit — a completely different deal.
Markup vs margin visual
Step-by-step pricing check
- Lock one convention per team (markup or margin).
- Translate target percentages before quoting.
- Check margin after discounts, rebates, and promos.
- Validate channel-level target margin before release.
Why this matters in real pricing
A buyer asking for "30% off list" is talking margin. A sales rep promising "I'll add 30%" is talking markup. A distributor agreement with "30% margin" expectations is talking margin. If the team applies markup math to a margin commitment, every SKU is silently underpriced.
Quick conversion table
- Markup → margin: markup ÷ (1 + markup)
- Margin → markup: margin ÷ (1 − margin)
| Markup | Equivalent margin |
|---|---|
| 20% | 16.7% |
| 30% | 23.1% |
| 50% | 33.3% |
| 100% | 50% |
Common mistakes
- Saying "30% margin" but applying it as markup.
- Mixing conventions across SKUs in the same price list.
- Marking up landed cost that already has a freight buffer baked in.
- Using the same percentage across channels (retail, wholesale, online) without recalculating to the channel's convention.
Frequently asked questions
Is one better than the other?
Margin tells you what fraction of revenue is profit, which is more useful for understanding business health. Markup is easier when setting prices off cost. Pick one per channel and document it.
Can margin reach 100%?
No. 100% margin would mean zero cost. Margin is bounded below 100% by definition. Markup has no upper bound.
Which one do retailers usually use?
Retailers and wholesalers most commonly speak in margin. Manufacturers and many sales teams default to markup. Always confirm before negotiating.
How do discounts interact with margin?
A discount taken off selling price reduces margin much faster than people expect — a 10% discount on a 30% margin SKU collapses margin to roughly 22%.