Both numbers describe the same profit. They differ only in what you divide that profit by — and because the price is always larger than the cost, the margin is always the smaller-sounding of the two. That is the whole of it, and it is worth real money.
What is the difference between margin and markup?
Margin divides profit by the selling price. Markup divides profit by the cost. Take an item that costs you £10 and sells for £15:
The working
Profit: £15.00 − £10.00 = £5.00 Margin: £5.00 ÷ £15.00 = 33.3% (share of the price) Markup: £5.00 ÷ £10.00 = 50.0% (share of the cost)
Same fiver either way. Two very different-sounding percentages, and a supplier quoting one while you plan around the other is where the trouble starts.
How do you price for a margin you want?
Divide, do not multiply. To keep 40% of the price, the cost has to be the other 60%, so you divide the cost by 0.6.
The working
Right: £18.50 ÷ (1 − 0.40) = £18.50 ÷ 0.60 = £30.83 Wrong: £18.50 × 1.40 = £25.90 The second is a 40% markup — a 28.6% margin. £4.93 a unit short.
Multiplying the cost by 1.4 does not give a 40% margin. It gives a 40% markup, which is a 28.6% margin. On a hundred units a week that single wrong operator is nearly £500.
Margin to markup conversion table
The two drift further apart the higher you go. At a 50% margin you have to double the cost; at 75% you have to quadruple it.
| Margin | Same as a markup of | Multiply cost by |
|---|---|---|
| 10% | 11.1% | 1.11× |
| 20% | 25.0% | 1.25× |
| 25% | 33.3% | 1.33× |
| 30% | 42.9% | 1.43× |
| 40% | 66.7% | 1.67× |
| 50% | 100.0% | 2.00× |
| 60% | 150.0% | 2.50× |
| 75% | 300.0% | 4.00× |
The formulas behind that table, if you want them: markup = margin ÷ (1 − margin), and margin = markup ÷ (1 + markup). Both take the percentages as decimals.
Which one should you use?
- Use margin when you are judging a business. It is the share of your revenue you keep, so it sits directly next to your other revenue percentages and it is what accounts are written in.
- Use markup when you are setting a price at the counter. "Cost times 1.5" is a rule someone can apply to a hundred products without a calculator, which is why the trade runs on it.
- State which one you mean, always. "We work on 40%" is ambiguous, and the ambiguity is worth about a tenth of your revenue.
Working out your margin, step by step
- Total up what the unit really costsNot just the trade price. Add anything you pay per unit — postage you absorb, packaging, the label. A cost that leaves out postage produces a margin that does not exist.
- Subtract that from the price to get the profitPrice minus total cost. If this is negative you are selling at a loss, and no percentage will make that better.
- Divide by the price for margin, by the cost for markupProfit ÷ price × 100 is the margin. Profit ÷ cost × 100 is the markup. Work out both — the gap between them is a useful sanity check on which one a supplier is quoting.
- Take the platform’s cut off separatelyNone of the above accounts for what eBay, Amazon or a card processor take. A 38% margin at the till is closer to 25% after a marketplace fee, a payment fee and the VAT on those fees.
Common questions
Is a 50% markup the same as a 50% margin?
No. A 50% markup is a 33.3% margin. To reach a 50% margin you need a 100% markup — you have to double the cost, not add half of it. This is the single most expensive confusion in retail pricing, precisely because both numbers sound reasonable.
Can margin be more than 100%?
No. Margin is a share of the price, and profit cannot be more than the whole price unless the item cost you less than nothing. Markup has no ceiling at all — a £1 item sold for £50 is a 4,900% markup and a 98% margin.
What is a good profit margin?
It depends entirely on what you sell. Supermarkets survive on a few percent through sheer volume; software and jewellery run at 70% and above. For physical products sold online, 30% and up leaves room to discount, absorb a return and still make money. Under 15%, a single refund can wipe out several sales.
Is this gross margin or net margin?
Gross. It counts what the unit costs you and nothing else. Net margin also takes off overheads — rent, subscriptions, your own time — and is always lower. Gross margin is the right number for pricing a product; net margin is the right number for judging the business.
Should postage be part of the cost?
If you pay it, yes. Postage you charge separately and pass straight on is neither cost nor profit, so leave it out of both. What you must not do is ignore postage you actually absorb — on low-value items it is frequently the difference between a margin and a loss.
What this does not cover
- Platform and payment fees. Nothing above is deducted for eBay, Amazon, Shopify or a card processor.
- VAT. Every figure here is VAT-exclusive. If your prices include VAT, take it off before working out a margin or it will read higher than it is.
- Overheads, returns, discounts and stock that never sells — all of which pull the real average below the figure on any single unit.
Check this before you rely on it. A free guide to everyday arithmetic — not tax, accounting, financial, legal or medical advice. The working is shown above so you can verify it against your own figures. See our terms of use.