Margin vs markup — what is the difference?
Both margin and markup measure profit on the same transaction. The only difference is the denominator — what you divide by to get the percentage.
- Gross margin divides profit by revenue. It answers: "what share of each dollar I collect is profit?"
- Markup divides profit by cost. It answers: "how much did I add on top of what it cost me?"
This single difference produces two completely different numbers from the same transaction — and confusing them is one of the most common pricing mistakes in small business.
Gross profit = Revenue − Cost Gross margin = Gross profit ÷ Revenue × 100 Markup = Gross profit ÷ Cost × 100 Example: Cost $30, Revenue $50 Gross profit = $50 − $30 = $20 Gross margin = $20 ÷ $50 = 40% Markup = $20 ÷ $30 = 66.7% Why the same profit gives two different percentages
On that $30 cost / $50 revenue example, the profit is $20 either way. But 40% ≠ 66.7%. The numbers describe the same reality from different vantage points:
- The seller collected $50 and kept $20 — that is 40% of revenue as profit
- The seller spent $30 and earned $20 on top — that is 66.7% above cost
Neither is wrong. But using margin language when you mean markup — or quoting a client a "markup" when you're calculating a "margin" — will result in underpricing every time.
Converting between margin and markup
Margin from Markup = Markup ÷ (1 + Markup) Markup from Margin = Margin ÷ (1 − Margin) 40% markup → 40 ÷ 140 = 28.6% margin 40% margin → 40 ÷ 60 = 66.7% markup Finding the right selling price
Use the Find selling price tab when you know your cost and want to hit a target. The formulas are different depending on whether your target is a margin or a markup:
Revenue = Cost ÷ (1 − Margin%) Example: Cost $30, target 40% margin → $30 ÷ 0.60 = $50.00 Revenue = Cost × (1 + Markup%) Example: Cost $30, target 40% markup → $30 × 1.40 = $42.00 Same cost, same 40% target — but $50 vs $42. This is why the distinction matters in practice.
Margin and markup reference table
| Markup | Gross margin | On $100 cost | Revenue |
|---|---|---|---|
| 10% | 9.1% | $100 | $110.00 |
| 20% | 16.7% | $100 | $120.00 |
| 25% | 20.0% | $100 | $125.00 |
| 33.3% | 25.0% | $100 | $133.33 |
| 50% | 33.3% | $100 | $150.00 |
| 66.7% | 40.0% | $100 | $166.67 |
| 100% | 50.0% | $100 | $200.00 |
| 200% | 66.7% | $100 | $300.00 |
Frequently asked questions
Is a 40% margin the same as a 40% markup?
No — and this is the most common source of pricing errors. A 40% margin means profit is 40% of revenue, which requires a 66.7% markup on cost. A 40% markup means you added 40% to your cost, giving you a 28.6% margin. Same words, very different numbers.
What is a good profit margin?
It depends entirely on the industry. Grocery retail typically operates at 1–3% net margin. Software companies can exceed 70%. As a rough reference: gross margins below 20% are thin for most product businesses; 40–60% is common in e-commerce; services businesses often run 50–70%. Compare to industry benchmarks rather than a universal standard.
Can margin exceed 100%?
No. Gross margin is profit divided by revenue, and profit can never exceed revenue (that would require negative costs). Margin is bounded at 0–100%. Markup, however, has no ceiling — a 200% markup simply means you charged three times your cost.
What happens when revenue is below cost?
Both margin and markup become negative, indicating a loss. This is mathematically valid — many businesses sell below cost during promotions or when clearing inventory. The calculator handles this correctly and flags it as a loss.
Does this calculator store my data?
No. All calculations run in your browser. Nothing is sent to a server or saved anywhere.