Profit Margin vs Markup: What's the Difference?

The Problem

Someone tells you they use a "50% markup" on their products, and you assume that means the same thing as a 50% profit margin. It doesn't - and mixing the two up can lead to pricing your products lower than you meant to, eating into profit without realising it.

What's the Difference?

Margin is profit as a percentage of your selling price.
Markup is profit as a percentage of your cost.

Worked Example

You sell something for 80 pounds that cost you 50 pounds to make or buy. Your profit is 30 pounds either way - but the two percentages look very different:

• Margin: 30 / 80 = 37.5%
• Markup: 30 / 50 = 60%

Same transaction, same profit in pounds, but a 22.5 percentage point difference depending on which one you're quoting.

Steps to Calculate Each

To find margin:

1. Subtract cost from selling price to get profit
2. Divide profit by selling price
3. Multiply by 100 for a percentage

To find markup:

1. Subtract cost from selling price to get profit
2. Divide profit by cost (not selling price)
3. Multiply by 100 for a percentage

Common Mistakes

• Using markup and margin interchangeably in conversation - "50% markup" and "50% margin" produce completely different selling prices from the same cost, so mixing up terminology with a supplier or client can cause real pricing confusion
• Setting a target margin but calculating it as markup - if you want a 40% margin but accidentally apply a 40% markup instead, you'll actually end up with a lower margin than intended (a 40% markup on a 50 pound cost gives a 70 pound price, which is only a 28.6% margin, not 40%)
• Assuming higher markup always means higher margin - they move together, but not at the same rate, especially at higher percentages

Calculate Both With WaqarWeb

The Profit Margin Calculator takes your cost and selling price and shows both figures side by side instantly, so you can see exactly how they differ for your specific numbers rather than doing the maths by hand.

Frequently Asked Questions

Which one should I use when pricing my products?

Either works - what matters is being consistent and clear about which one you're using, especially when discussing pricing with suppliers, accountants or business partners.

Is there a "good" margin or markup to aim for?

It varies enormously by industry - retail, services and manufacturing all have very different typical figures. Comparing against others in your specific field is more useful than a universal target.

Does this include VAT or other costs?

No - margin and markup here refer to the difference between your cost price and selling price only. For UK VAT specifically, see our VAT guide and the VAT Calculator alongside this one.