Markup vs Margin: What's the Difference and Which Should You Use?

Markup vs margin in one line

Markup is profit as a percentage of what the item cost you. Margin is profit as a percentage of what you sold it for. Same profit, different denominator - so the two percentages never match, and margin is always the smaller number.

That difference matters the moment you pick a target. A "50% markup" and a "50% margin" are completely different prices, and only one of them leaves you with half of every sale as profit.

The formulas, with a worked example

• Profit = selling price - cost
• Markup % = profit / cost x 100
• Margin % = profit / selling price x 100

Take a product that costs you £20 and sells for £30:

One sale, one £10 profit - described as either a 50% markup or a 33.3% margin. Both are correct. Problems start when a supplier quotes one, your accountant reports the other, and you price against the wrong one.

Markup to margin conversion table

You can convert between the two without redoing the sum. Margin = markup / (1 + markup), and markup = margin / (1 - margin), with the percentages written as decimals.

A useful rule of thumb: doubling your cost is a 100% markup but only a 50% margin. If your plan needs a 50% markup to reach a "good" margin, it will not.

How to set a price from your target margin

If you know the margin you need, work backwards. Selling price = cost / (1 - target margin).

• Cost £12, target margin 40%: £12 / 0.60 = £20.00
• Cost £12, target margin 30%: £12 / 0.70 = £17.14
• Cost £12, target markup 40% (not margin): £12 x 1.40 = £16.80

Notice the last two: a 30% margin and a 40% markup land in a similar place, which is exactly why people confuse them. Decide up front which number your business runs on, and use that one everywhere.

Gross profit percentage, net margin and fees

"Profit percentage" and "gross profit as a percentage" almost always mean gross margin: (revenue - cost of goods sold) / revenue x 100. It ignores everything except what the stock cost you.

For an online seller that flatters the truth, because the real costs sit around it. Before you trust a margin figure, take off:

• Marketplace fees - for eBay, see our UK fees explained and the eBay fees calculator
• Postage and packaging you pay for
• Payment processing charges
• Returns and refunds
• VAT - if you are VAT-registered, work with prices excluding VAT, or your margin will look bigger than it is

What is left is your net margin - the number that pays you. Many sellers are surprised to find a healthy-looking 40% gross margin shrinks to single digits after fees and postage on low-priced items.

Five mistakes that cost sellers money

1. Pricing with markup, judging with margin. You add 40% to cost, then wonder why your accounts show a lower percentage.
2. Ignoring fees on cheap items. A fixed fee on a £5 sale takes a far bigger bite than on a £50 one.
3. Using a stale cost price. If your supplier put prices up, your margin has already gone down. Keep costs current, and remember stock bought earlier may have cost less.
4. Forgetting variants. A large size or a longer cable can cost more to source and post - price each variant on its own cost.
5. Chasing a percentage instead of pounds. A 60% margin on a £3 item earns less than a 25% margin on a £60 item. Watch both.

Keeping margin visible as you grow

Margin is only as good as the cost price behind it. If you enter a cost on each product, Salync's Margin Analysis page shows gross margin per product at a glance, and you can sort by margin, so the thin ones stand out. It works from the cost price you enter, so it is worth keeping that up to date. For the cost side, see how stock valuation methods affect the number.

Frequently asked questions

What is the difference between markup and margin?

Markup is profit divided by cost. Margin is profit divided by selling price. On a £20 item sold for £30, the profit is £10, which is a 50% markup but a 33.3% margin.

Is markup or margin higher?

Markup is always the higher percentage for the same profit, because it is measured against the smaller number (cost) rather than the selling price. A 100% markup equals a 50% margin.

How do I calculate profit percentage?

For margin, divide profit by selling price and multiply by 100. For markup, divide profit by cost and multiply by 100. Most people asking for "profit percentage" mean margin.

How do I work out gross profit as a percentage?

Gross profit percentage = (revenue - cost of goods sold) / revenue x 100. It is the same as gross margin and only counts what the stock cost you, not fees, postage or overheads.

What margin should an online seller aim for?

There is no single right number - it depends on your category, fees and volume. Work out your net margin after fees, postage and returns, and check it still leaves you a profit in pounds worth having, not just a good-looking percentage.