Margin and markup are calculated from the same two numbers — cost and price — which is exactly why they get confused. Mix them up and you'll price products believing you earn more than you do. It's one of the most common quiet leaks in small-business pricing.
The two formulas
Margin = (price − cost) ÷ price × 100 — profit as a share of what the customer pays
Markup = (price − cost) ÷ cost × 100 — profit as a share of what you paid
Same numerator, different denominator. Because price is always larger than cost (you hope), margin is always the smaller number for any given price.
Example: you buy at $60, sell at $100.
- Margin: (100 − 60) ÷ 100 = 40%
- Markup: (100 − 60) ÷ 60 = 66.7%
Same transaction, two very different percentages. The margin calculator converts between them instantly, in either direction.
The conversion table
| Markup | Margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
| 150% | 60% |
| 300% | 75% |
Notice the pattern: markup grows without bound, margin approaches but never reaches 100%. A "500% markup" sounds obscene; it's an 83% margin — normal for software, cosmetics, or anything where the cost of goods is small.
The mistake that costs real money
The classic failure: management says "we need a 50% margin" and someone prices at cost × 1.5 — which is a 50% markup, i.e. only a 33.3% margin. Every sale silently earns 17 points less than the business planned for. Multiply across a year of revenue and the gap is often the difference between profit and loss.
The safe conversion formulas:
price for a target margin: price = cost ÷ (1 − margin)
price for a target markup: price = cost × (1 + markup)
For that 50% margin on a $60 cost: 60 ÷ (1 − 0.5) = $120, not $90.
Which one should you think in?
- Think in margin for financial health — investors, accountants, and your P&L all speak margin. Gross margin is what funds everything below it: salaries, marketing, rent, you.
- Think in markup for quick pricing at the counter or in a quote — "cost times X" is fast mental math when buying decisions happen live.
- Never mix them in one sentence. If someone says "we make 60% on this," ask: of price, or of cost? The answer changes your reality by a third.
Discounts destroy margin faster than intuition says
At a 40% margin, a 10% discount doesn't cost you 10% of profit — it costs 25% of it (profit drops from $40 to $30 per $100 of list price). At a 20% margin, that same 10% discount halves your profit. This is why "small" discounts need volume increases far larger than most people guess to break even — and it's the first thing to check before running a sale.
Check any cost/price pair — margin, markup, or work backwards from a target — in the free margin calculator. Formula shown live, no sign-up.