Markup vs Margin: Why a 50% Markup Is Only a 33% Margin

A shop owner buys a product for $40 and sells it for $60. Ask what they make on it and you can get two honest answers: "50%" or "33%". Both are right. The first is the markup and the second is the margin, and mixing them up is one of the most common ways a small business ends up charging less than it meant to.

This guide shows where the two numbers come from, how to convert one into the other, and the pricing mistakes that follow from confusing them. Every figure here is plain arithmetic you can check yourself or reproduce in the Markup Calculator and the Profit Margin Calculator.

Same profit, different denominator

Both measures start from the same profit: the selling price minus what the item cost you. They differ only in what you divide that profit by.

• Markup = profit ÷ cost. It answers "how much did I add on top of what I paid?"
• Margin = profit ÷ selling price. It answers "how much of each sale do I keep?"

For the $40 item sold at $60, the profit is $20. Divided by the $40 cost, that's a 50% markup. Divided by the $60 price, it's a 33.33% margin. Because the price is always bigger than the cost when you make a profit, the margin is always the smaller of the two numbers.

That also explains a difference in their limits. Markup can be any size: double your cost and the markup is 100%, triple it and it's 200%. Margin can never reach 100%, because that would mean the item cost you nothing.

Converting one into the other

If you know one, you can always find the other, written as decimals (so 50% is 0.50):

• Margin = markup ÷ (1 + markup). A 0.50 markup gives 0.50 ÷ 1.50 = 0.3333, a 33.33% margin.
• Markup = margin ÷ (1 − margin). A 0.30 margin needs 0.30 ÷ 0.70 = 0.4286, a 42.86% markup.

Here are common values worked out on an item that costs $100:

The gap between the two numbers grows as the markup rises. A 10% markup is a 9.09% margin, almost the same; a 200% markup is a margin of only 66.67%.

Pricing to a target margin

Suppose you decide you want to keep 30% of every sale, and an item costs you $70. The tempting shortcut is to add 30% to the cost:

$70 × 1.30 = $91. The profit is $21, and $21 ÷ $91 is a margin of only 23.08%. You've applied a 30% markup, not a 30% margin.

The correct calculation divides the cost by what's left after the margin:

Price = cost ÷ (1 − target margin) = $70 ÷ 0.70 = $100.

Now the profit is $30, which is exactly 30% of the $100 price, and the markup is 42.86%. The shortcut left $9 on the table on every unit. Over 500 units that's $4,500 of profit you planned for and never received.

The Profit Margin Calculator has a target-margin mode that does this division for you, and the Markup Calculator shows the margin next to any markup you enter, so you can see both numbers at once.

Discounts: your margin is your safety limit

Margin matters most when you put things on sale. A discount comes off the selling price, and margin is measured against the selling price, so the two line up neatly: the largest discount you can give before you sell below cost equals your margin.

Take an item that costs $40 and normally sells for $50. That's a 25% markup, but only a 20% margin. A "20% off" sale brings the price to $40, which is exactly the cost: you make nothing. If you'd been thinking in markup terms, you might have believed you had 25% of room.

The same item at $60 (50% markup, 33.33% margin) can take a discount of up to 33.33% before it hits $40. A "50% off" sale would bring it to $30 and lose $10 on every unit sold.

For quick sale prices, the Discount Calculator shows the price after any percentage off; compare that with your cost before you commit to a promotion.

Mistakes that quietly cost money

Quoting a margin target but pricing with a markup

This is the $70 example above. If your accountant, supplier or business plan talks about margin, price with the margin formula.

Working out margin on a price that includes tax

In countries with VAT or GST, shelf prices often include the tax, but that part of the price was never yours to keep. Say an item costs you £40 before VAT and sells for £72 including 20% VAT. Measured on £72, the margin looks like 44.44%. But the price without VAT is £72 ÷ 1.2 = £60, so the real margin is £20 ÷ £60 = 33.33%. Our guide on how to remove VAT or GST from a price walks through that step.

Comparing a markup with someone else's margin

Benchmarks, competitor figures and supplier advice can be quoted either way. "We work on 40%" means very different prices depending on which measure is meant: on a $100 cost, a 40% markup gives $140, while a 40% margin gives $166.67. Always ask which one it is.

Forgetting what the margin leaves out

The margins in this guide are gross margins: price minus the direct cost of the item. Rent, wages, card fees, shipping and marketing still have to come out of that. A product can have a healthy gross margin while the business as a whole loses money. The Break-Even Calculator shows how many sales it takes to cover those fixed costs.

So which one should you use?

Use whichever fits the job, as long as you know which one you're using:

• Markup is handy when you set prices from cost, for example quoting a job or pricing a new product line, because you start from what you paid.
• Margin is better for judging how profitable your sales are and for comparing products, because it's measured against revenue, the same base your accounts use.
• When setting a sale price, check it against your margin, because that's the limit before you sell at a loss.

If you only remember one thing, remember the pair from the title: a 50% markup is a 33.33% margin, and a 50% margin is a 100% markup.

Last reviewed: 11 October 2026. The only outside figure in this guide is the UK's 20% standard VAT rate (see Sources); everything else is arithmetic, and the prices are illustrations. It's general information, not financial or tax advice.