Markup vs Margin — The Critical Difference
Markup and margin both measure profitability but from different perspectives. Markup is profit as a percentage of cost. Margin is profit as a percentage of revenue. They will never be equal — and confusing them is one of the most expensive pricing mistakes a business can make.
Example: you buy a product for £10 and sell it for £15. Markup = 50%. Margin = 33.3%. If you believe you are making 50p in every £1 of revenue but are actually only making 33p, your entire business model may be under-priced.
Markup vs Margin FAQs
What is the difference between markup and margin?
Markup is the profit expressed as a percentage of the COST. Margin is the profit expressed as a percentage of the SELLING PRICE. For example, if an item costs £10 and sells for £15, the markup is 50% (profit ÷ cost = 5 ÷ 10) but the margin is only 33.3% (profit ÷ price = 5 ÷ 15). The two figures will never be equal unless profit is zero.
How to calculate selling price from a target margin?
Use the formula: Selling Price = Cost ÷ (1 − Margin%). For example, if your cost is £10 and you want a 40% margin: Selling Price = 10 ÷ (1 − 0.40) = 10 ÷ 0.60 = £16.67. This gives a 40% margin (profit of £6.67 ÷ £16.67 = 40%). Our calculator does this automatically — enter your cost and target margin to get the correct selling price.
Why is a 50% markup not the same as a 50% margin?
A 50% markup on a £10 cost gives a selling price of £15 (cost × 1.5). The margin on this sale is 33.3% (£5 profit ÷ £15 price). To achieve a 50% margin you need to sell at £20 (£10 ÷ 0.5). Confusing the two means you believe you are making 50p in every £1 of revenue when you are actually only making 33p. This is one of the most common and costly pricing mistakes in retail and trade.
Is it better to use markup or margin for pricing?
Margin is generally preferred for pricing decisions and financial reporting because it directly shows what percentage of revenue is profit. Markup is easier to calculate at the point of purchase. Most accountants and financial statements use margin. However, trade businesses commonly use markup on parts and materials. The important thing is to know which you are using and not to confuse them.
How to price products profitably in the UK?
Start with your fully-loaded cost (including overheads, not just direct cost). Apply a margin that covers your overhead allocation and desired profit — a common starting point is 40–60% gross margin for product businesses. Check your price against market rates and competitor pricing. Use our calculator to find the exact selling price that achieves your target margin, then verify the price is competitive.