Margin vs Markup: The Difference That Quietly Eats Your Profit
Mark something up 30% and your margin is only 23%. Contractors, shops, and freelancers lose real money to that gap every day, because the two words sound interchangeable and are not.
By Rohit Sharma, Founder, SEOShouts
Markup and margin both describe the difference between what something costs you and what you sell it for. They are not the same number, and treating them as if they were is one of the most expensive small mistakes in business. A tradesperson who "adds 20%" thinking they are making a 20% margin is actually making about 17%, and wondering where the profit went.
The two formulas
markup % = (price - cost) / cost x 100
Markup measures profit against what you PAID. The denominator is cost.
margin % = (price - cost) / price x 100
Margin measures profit against what you CHARGED. The denominator is price.
The only difference is the denominator, and it changes everything. Both use the same profit on top; markup divides it by the smaller number (cost), margin by the larger number (price). So markup is always the bigger-looking percentage, which is exactly why sellers quote it and why it flatters.
A worked example
You buy an item for £100 and sell it for £130. Profit is £30. Markup is £30 / £100 = 30%. Margin is £30 / £130 = 23%. Same sale, same £30 profit, two very different percentages. If your business plan assumes a 30% margin but you priced with a 30% markup, every sale is quietly delivering 23%, and across a year that gap is the difference between healthy and struggling.
| Markup | Equivalent margin |
|---|---|
| 15% | 13.0% |
| 25% | 20.0% |
| 30% | 23.1% |
| 50% | 33.3% |
| 100% | 50.0% |
The gap widens as the numbers grow. Doubling your cost (100% markup) gives a 50% margin, not 100%. This is the table to keep near you if you set prices, because intuition consistently overestimates the margin a given markup delivers.
Why this sinks small businesses quietly
The danger is that the error is invisible. Nothing bounces, nothing errors, every sale looks fine. You simply make less than you planned on every single transaction, and it only surfaces at year end when the profit is thinner than the volume suggested it should be. Contractors bidding jobs on markup while budgeting on margin are the classic case, and it is why the same confusion shows up again and again in trade forums.
- Markup divides profit by cost; margin divides profit by price.
- Markup always looks bigger than the margin it delivers.
- Decide the margin your business needs first.
- Price backwards from that margin: price = cost / (1 - margin).
- Never assume a markup percentage equals the same margin percentage.
Frequently asked questions
What is the difference between margin and markup?
Both measure profit above cost, but markup divides that profit by the cost you paid, while margin divides it by the price you charged. Because price is larger than cost, the same sale always shows a bigger markup percentage than margin percentage.
Is a 30% markup the same as a 30% margin?
No. A 30% markup produces about a 23% margin. The two are only equal at zero. Confusing them means charging less than you think and quietly earning a thinner margin on every sale.
How do I price for a target margin?
Divide your cost by one minus the margin as a decimal. For a 40% margin on a £100 item, that is 100 / (1 - 0.40) = £166.67. Pricing this way guarantees the margin, rather than hoping a markup happens to deliver it.
Calculators from this guide
About the author
Rohit Sharma is the founder of SEOShouts, a search consultancy in India, and has worked in technical SEO and content strategy since 2014. He builds and maintains Calcshark.