Margin vs Markup: The Pricing Mistake That Quietly Kills Profit

Why a 50% markup is only a 33% margin, with conversion tables and pricing rules.

Margin and markup describe the same profit, divided by different numbers. Mixing them up is one of the most common — and most expensive — pricing errors in small business.

Definitions

An item costing 60 and selling for 100 has a profit of 40: a 66.7% markup but a 40% margin.

Conversion table

Conversions: Margin = Markup ÷ (1 + Markup), and Markup = Margin ÷ (1 − Margin).

How the mistake happens

An owner wants a 40% margin, so they add 40% to cost. A 60 cost becomes 84 — but the margin on 84 is only 28.6%. Across a year of sales, that gap can wipe out the entire profit target.

The correct way to price from a margin target

For a 40% margin on a 60 cost: 60 ÷ 0.6 = 100.

Which should you use?

• Use markup when quoting from supplier cost (common in retail and trades).
• Use margin when reading financial statements, comparing with competitors or setting company targets.

Most important: be explicit. Write “40% gross margin”, never just “40%”.

Calculate both instantly with the markup calculator and the price-from-target-margin calculator.