📖 Margin vs Markup: What's the Difference?
These terms are often confused but they're calculated differently:
- Profit Margin = Profit ÷ Revenue (selling price)
- Markup = Profit ÷ Cost
Example: Buy for $50, sell for $80.
- Profit = $30
- Margin = $30 ÷ $80 = 37.5%
- Markup = $30 ÷ $50 = 60%
📐 The Formulas
Profit Margin = (Revenue - Cost) ÷ Revenue × 100
Markup = (Revenue - Cost) ÷ Cost × 100
Quick Conversion Table
- 25% margin = 33% markup
- 30% margin = 43% markup
- 40% margin = 67% markup
- 50% margin = 100% markup
❓ Frequently Asked Questions
It varies by industry. Retail: 2-5%. Software: 70-80%. Services: 15-25%. Research your industry benchmarks to know if you're competitive.
Margin is better for understanding overall profitability. Markup is useful when pricing products. Most financial reports use margin.
Gross margin only accounts for direct costs (COGS). Net margin subtracts ALL expenses including overhead, taxes, interest. Net margin is the true bottom line.
Reduce costs (negotiate with suppliers, improve efficiency), increase prices (add value, better marketing), or change product mix (focus on high-margin items).