Margin vs Markup: The Difference (With Formulas and Examples)
A seller decides they want "50% profit." They buy a product for $60, add 50%, and price it at $90. At month end their accountant reports a 33% margin and everyone is confused. Nothing went wrong — except vocabulary.
The definitions
- Margin = profit ÷ selling price. It answers: of every dollar the customer pays, how much do I keep?
- Markup = profit ÷ cost. It answers: how much did I add on top of what I paid?
Same transaction, different denominators. Markup is always the bigger number, and the gap widens as prices rise.
Conversion table
| Markup | Equals margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 100% | 50% |
| 200% | 66.7% |
| 300% | 75% |
The formulas: margin = markup ÷ (1 + markup) and markup = margin ÷ (1 − margin).
Why the confusion is expensive
Marketplace fees are quoted as margin-style percentages of price (Amazon's 15% referral is 15% of price). If you plan in markup but pay fees in margin terms, your mental math systematically overstates profit. The keystone rule of retail — "double the cost" — is a 100% markup and only a 50% gross margin, which after 15% referral fees, fulfillment, and ads often nets close to zero. Price from a target margin, computed properly: our pricing guide walks through the formula that handles percentage fees correctly.