How it works
Markup and margin describe the same dollars
Both measure the gap between what something cost you and what you sold it for. Margin is that gap as a share of the price. Markup is the same gap as a share of the cost. Because the price is always bigger than the cost when you make money, the markup is always the bigger percentage.
Margin = (price − cost) ÷ price
Markup = (price − cost) ÷ cost
Price for a target margin = cost ÷ (1 − margin)
Price for a markup = cost × (1 + markup)
A worked example
A part costs you $100.00. You want a 40% margin. The price is $100 ÷ 0.60 = $166.67: $66.67 of profit, which is 40% of the price and a 66.7% markup on the cost. Mark the same part up 40% instead and the price is $140.00 — only a 28.6% margin, $26.67 short on a single part. Across a year of invoices that gap is real money.
Conversion tables
Margin to markup| Margin | Markup needed |
|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 33.3% | 49.9% |
| 35% | 53.8% |
| 40% | 66.7% |
| 45% | 81.8% |
| 50% | 100.0% |
| 60% | 150.0% |
Markup to margin| Markup | Margin it gives |
|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20.0% |
| 30% | 23.1% |
| 40% | 28.6% |
| 50% | 33.3% |
| 75% | 42.9% |
| 100% | 50.0% |
| 150% | 60.0% |
Common mistakes
- Hitting a margin target with a markup. A 35% target applied as cost × 1.35 gives 25.9%.
- Discounting off a thin margin. A 10% discount on a price with a 30% margin does not leave 20%: $100 with $70 cost becomes $90, and $20 ÷ $90 is 22.2%. The discount comes entirely out of your profit.
- Mixing the two in one conversation. When a supplier, a partner or an accountant quotes a percentage, ask which one it is.
Which one to use
Margin answers “how much of each dollar I charge do I keep?”, which is the question overhead cares about — rent and salaries are paid out of revenue, not out of cost. Markup is quicker at the counter: multiply the cost and go. Use whichever you like to set a price, and check the result as a margin.