Profit Margin vs Markup: Formulas, Differences, and Examples
Understand the difference between profit margin and markup, learn both formulas, and convert between them with a simple table.
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The core difference
Gross profit is selling price minus cost. Profit margin expresses that profit as a percentage of the selling price. Markup expresses it as a percentage of the cost.
- Gross profit = selling price - cost
- Profit margin = gross profit / selling price × 100
- Markup = gross profit / cost × 100
Example: cost $60, selling price $100
Gross profit is $40. Profit margin is 40 / 100 = 40%. Markup is 40 / 60 = 66.67%. The same $40 profit gives two different percentages.
Converting between markup and margin
Margin is always lower than markup for the same profit. Use margin = markup / (1 + markup) when markup is a decimal.
| Markup | Equivalent margin |
|---|---|
| 25% | 20% |
| 50% | 33.33% |
| 100% | 50% |
Common pricing mistakes
Use the Profit Margin Calculator to see profit, margin, and markup together from cost and price.
- Adding a 40% markup and expecting a 40% margin.
- Ignoring shipping, fees, or taxes when calculating cost.
- Confusing gross margin with net margin, which also subtracts operating costs.
FAQ
Is margin or markup better for pricing?
Markup is convenient for setting a price from cost, while margin shows how much of each sale is profit. Many businesses track both.
Can margin be higher than 100%?
No. Margin cannot exceed 100% because profit cannot be larger than the selling price, but markup can exceed 100%.
How do I find the selling price from cost and margin?
Divide the cost by (1 - margin as a decimal). For a cost of $60 and a 40% margin, 60 / 0.6 = $100.
