Margin vs markup: what is the difference?
5 min read · Updated 2026-10-08
Margin and markup both describe profit, but they measure it against different things, and mixing them up leads to underpricing. This guide gives the formulas, a table you can check your own numbers against, and a simple rule for which to use.
The definitions
Same profit, different denominator. Because the price is always bigger than the cost, margin is always a smaller percentage than markup.
- Markup is profit as a percentage of cost: (price − cost) ÷ cost
- Margin is profit as a percentage of price: (price − cost) ÷ price
Comparison table (cost of 100)
- 10% markup: price 110, profit 10, margin 9.09%
- 25% markup: price 125, profit 25, margin 20%
- 50% markup: price 150, profit 50, margin 33.33%
- 100% markup: price 200, profit 100, margin 50%
The common mistake
Suppose you want a 40% margin on an item that costs 100. Many people add 40% to the cost and charge 140. But 40 is only 28.57% of 140. To really earn a 40% margin you divide cost by 0.6 and charge 166.67. That is a 66.67% markup. The gap is bigger the higher your target, and it is paid for entirely by you.
Which should you use?
Use margin to judge how healthy the business is: it tells you how much of every pound, dollar or dirham of sales is left after direct costs, and it is what you compare against overheads. Use markup as a quick way to build a price from a supplier cost when you already know your target. If you think in margin, price with the formula cost ÷ (1 − margin). The margin calculator does it for you, and the markup calculator shows the margin you actually end up with.
Frequently asked questions
Can margin ever be higher than markup?
No. For any profitable sale, margin is lower than markup, because margin divides by the larger number, the selling price.
Can margin reach 100%?
Only if the cost is zero. A target margin of 100% or more cannot be priced, which is why the calculators reject it.
Is gross margin the same as profit?
No. Gross margin only subtracts direct costs. Overheads such as rent, software and insurance still have to be paid from it.
Put it into practice
BusinessPilotOS connects quotes, jobs, invoices, payments and costs, so the numbers in this guide come straight from your own records.