The difference in one line
Both describe the same profit. They just divide it by different things.
profit = price − cost markup = profit / cost ← measured against what you paid margin = profit / price ← measured against what the customer paid
Because price is always larger than cost, margin is always the smaller number. Any time someone quotes a percentage without saying which one it is, assume the more flattering reading and check.
Worked example
You buy at 60 and sell at 100:
- profit = 100 − 60 = 40
- markup = 40 / 60 = 66.7%
- margin = 40 / 100 = 40%
Same forty units of profit, two very different-looking percentages. Neither is wrong; they answer different questions. Markup asks how much you added. Margin asks how much of the sale you keep.
The mistake that costs real money
You want a 30% margin, so you add 30% to your cost. Cost 60 becomes 78 — and the margin you actually get is 18 / 78 = 23.1%, not 30%.
To land on a 30% margin the price has to be 60 / 0.7 = 85.71. That is nearly eight units per item, and on any real volume it is the difference between a business that works and one that does not.
price for a target margin = cost / (1 − margin) price for a target markup = cost × (1 + markup)
The error grows fast. At a 50% target the same cost of 60 gives 90 as a markup and 120 as a margin — a gap of 30, which is half your cost price.
Which one should you use?
Margin for anything to do with the health of the business. It is what accounts, investors and marketplaces mean, it compares cleanly between products and it is the figure that tells you how much room a discount has.
Markup for setting prices at the counter. If you buy at a known cost and apply a standard multiplier, markup is the quicker mental arithmetic — “cost times two” is a 100% markup and a 50% margin.
Trouble starts when the two get mixed inside one company: purchasing thinks in markup, finance reports in margin, and the two sets of numbers never agree.
Where VAT fits
Margin and markup are always calculated on net figures. VAT is not yours, so it never belongs in either.
The VAT selector on this page exists for the last step only: you work out the net price your margin requires, then add the destination country’s rate to get the price you actually display. Calculating margin against a gross price overstates it by roughly the tax rate — a 40% margin looks like 40% until you notice the 23% of Polish VAT sitting inside the number.
Markup to margin conversion
| Markup | Margin |
|---|---|
| 10.0% | 9.1% |
| 15.0% | 13.0% |
| 20.0% | 16.7% |
| 25.0% | 20.0% |
| 30.0% | 23.1% |
| 40.0% | 28.6% |
| 50.0% | 33.3% |
| 60.0% | 37.5% |
| 75.0% | 42.9% |
| 100.0% | 50.0% |
| 150.0% | 60.0% |
| 200.0% | 66.7% |
| 300.0% | 75.0% |
Frequently asked questions
Markup, always — for any profitable sale. The two are linked: margin = markup / (1 + markup). A 100% markup is a 50% margin; a 50% markup is a 33.3% margin.
Divide your cost by 0.6. At a cost of 60 that is 100. The general form is cost / (1 − margin as a decimal). Adding 40% to the cost gives you 84 and a margin of only 28.6%.
Only if the goods cost you nothing, which is why the calculator refuses it. As margin approaches 100% the required price approaches infinity. Markup has no such ceiling — a 900% markup is perfectly possible and equals a 90% margin.
If you want a margin you can act on, yes. Gross margin traditionally covers only the cost of goods, but for online selling the advertising cost per unit behaves exactly like a cost of goods. Include it and the number stops flattering you.
There is no universal answer — grocery runs on low single digits, software on ninety-plus. The useful test is not the level but the cushion: can the product survive a 20% discount, a rise in ad costs and a normal rate of returns, and still clear zero?