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Markup vs. Margin: Difference, Formulas and Example

Markup expresses gross profit as a percentage of cost, while gross profit margin expresses the same profit as a percentage of selling price.

Also called: Margin vs. markup; Markup and margin.

How it works

Both start with selling price minus cost, but their denominators answer different questions. Markup describes the amount added to cost to set a price. Margin describes how much of each sales dollar remains after that cost. For a product calculation, specify what the cost includes and keep sales tax treatment consistent. Gross profit is not net profit after all business expenses.

Markup = (price − cost) / cost; margin = (price − cost) / price

Multiply decimal ratios by 100 for percentages. With positive cost and price: margin = markup / (1 + markup), and markup = margin / (1 − margin).

A product costing $80 and selling for $100

Use a cost of $80 and a selling price of $100, both excluding sales tax.

  1. Gross profit per item: $100 − $80 = $20.
  2. Markup on cost: $20 / $80 = 25%.
  3. Gross profit margin on price: $20 / $100 = 20%.

The same $20 profit is a 25% markup and a 20% margin. A 25% margin would instead require a price of $80 / 0.75 ≈ $106.67.

Positive unit cost and selling price; no sales tax. This compares product-level gross profit before other operating expenses.

Try these example inputs

Do not enter a target margin as a markup

Adding 20% to cost produces a 16.67% margin, not 20%. At positive cost, a 100% gross margin is unattainable at a finite price. A product’s positive gross margin also does not show whether sales cover rent, staff and other operating costs.

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Sources and checks

Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.

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