“I add 25% on top, so I make 25% profit.” This common belief costs small businesses a lot of money. Adding 25% to cost is a markup; the profit share of your selling price, the margin, is only 20%. This guide explains markup vs margin, shows how to convert between them and how our Profit Margin Calculator helps.
Definitions
- Markup = profit ÷ cost × 100
- Margin = profit ÷ selling price × 100
Same profit, different base.
Example
Cost Rs 800, selling price Rs 1,000, profit Rs 200.
- Markup: 200 ÷ 800 × 100 = 25%
- Margin: 200 ÷ 1,000 × 100 = 20%
Conversion formulas
Margin = markup ÷ (1 + markup)
Markup = margin ÷ (1 − margin)
Conversion table
| Markup | Margin |
|---|---|
| 10% | 9.1% |
| 25% | 20% |
| 33.3% | 25% |
| 50% | 33.3% |
| 100% | 50% |
| 150% | 60% |
A 100% markup (doubling the cost) gives a 50% margin, never 100%.
Why the difference matters
Suppose your rent, salaries and other expenses take 22% of sales. If you price with a 25% markup thinking you make 25%, your real margin is 20% and you are losing 2% of sales. Many shops discover this only at year end.
Which should you use?
- Use markup when setting prices from cost: “cost × 1.4”.
- Use margin when analysing profitability and comparing products, because it relates to sales.
- Be clear which one you mean when talking to partners, suppliers or staff.
Discounts eat margin quickly
A 20% discount on a product with a 25% margin leaves only a 6.25% margin. Before running a sale, read setting discounts without losing profit. Our Discount Calculator shows the new price, and the margin calculator shows what is left.
Wholesalers and retailers
Wholesalers often quote “retail margin” to shopkeepers. If a product’s suggested retail price is Rs 500 and you buy at Rs 400, your margin is 20% (markup 25%). Compare offers on the same basis. For general percentage help, the Percentage Calculator is useful.
A quick way to remember
Think of it this way: markup looks up from the cost, margin looks down from the price. Because the price is always larger than the cost, the same profit is always a smaller percentage of the price. So for any profitable sale, the margin percentage is lower than the markup percentage. If someone quotes you a profit percentage, ask which one it is before comparing.
Price for the margin you want
Once you know your target margin, use the formula price = cost ÷ (1 − margin). Our guide on how to calculate profit margin shows it with examples, including how to handle sales tax and every cost that belongs in the calculation.
Frequently asked questions
What is the difference between markup and margin?
Markup is profit as a percentage of cost; margin is profit as a percentage of selling price.
What margin does a 50% markup give?
33.3%.
Can margin be more than 100%?
No. Margin can approach but never reach 100%, while markup can be any size.