Markup vs margin: the difference
Markup and margin both describe the same profit, but they divide it by different numbers:
- Markup = profit ÷ cost × 100
- Margin = profit ÷ selling price × 100
An item that costs $40 and sells for $60 makes $20 profit. Its markup is $20 ÷ $40 = 50%, while its margin is $20 ÷ $60 = 33.33%. Mixing the two up is one of the most common pricing mistakes: a business that aims for a "50% margin" but adds a 50% markup ends up with only a third of each sale as gross profit.
The formulas
| You know | Selling price | Markup | Margin |
|---|---|---|---|
| Cost and markup % | cost × (1 + markup) | given | markup ÷ (1 + markup) |
| Cost and price | given | (price − cost) ÷ cost | (price − cost) ÷ price |
| Cost and target margin % | cost ÷ (1 − margin) | margin ÷ (1 − margin) | given |
To hit a target margin, divide the cost by (1 − margin). A $40 item at a 40% target margin must sell for $40 ÷ 0.60 = $66.67.
Markup to margin conversion table
| Markup | Gross margin |
|---|---|
| 10% | 9.09% |
| 25% | 20.00% |
| 33.33% | 25.00% |
| 50% | 33.33% |
| 75% | 42.86% |
| 100% | 50.00% |
| 150% | 60.00% |
| 200% | 66.67% |
| 300% | 75.00% |
Margin can never reach 100%, because that would require an infinite price. Markup has no upper limit: a product that costs $5 and sells for $50 has a 900% markup but a 90% margin.
What cost should you use?
Use the full landed cost of one unit: the purchase price plus shipping in, packaging, payment processing and any marketplace or platform fee you pay on every sale. Leaving these out makes your markup look healthier than it is. Fixed costs such as rent or software subscriptions are usually covered by gross profit across all sales rather than added to each unit.
Pricing tips
- Start from margin, not markup, when you plan a business. Overheads and ad costs are paid out of margin.
- Check your break-even ad spend. A 40% margin means you can spend at most $0.40 of every $1 of revenue on ads before losing money. The ROAS calculator shows this as a break-even ROAS of 2.5.
- Price for the customer, then check the margin. Cost-plus pricing is a floor, not a target; many products can carry a higher price than cost plus a fixed markup.