You add 30% to what something costs you and call it a 30% margin. It isn’t. It’s a 23.1% margin, and across a year of sales that gap is real money you thought you were making.
Markup and margin describe the same profit. They just measure it against different numbers. Markup divides the profit by what the item cost you. Margin divides it by what you sold it for.
Here’s the difference in one example, the two formulas, a chart to convert one to the other, and what it all means for your prices, your VAT and your ads.
What is the difference between markup and margin?
Take something that costs you €40 and sells for €60. You make €20 either way.
As a markup, that €20 is 50% of the €40 cost. As a margin, it’s 33.3% of the €60 price. Same sale, same €20, two different percentages.
So are profit margin and markup the same thing? No. They’re two views of one profit, and mixing them up is how a business prices itself into a loss without noticing.
| Markup | Margin | |
|---|---|---|
| Measures profit against | Cost | Selling price |
| Formula | (Price − cost) ÷ cost × 100 | (Price − cost) ÷ price × 100 |
| €40 cost, €60 price | 50% | 33.3% |
| Most useful for | Setting a price from a cost | Knowing what you keep |
How to work out markup and margin
Start with the profit on one sale: the selling price minus what the item or job costs you, both before VAT.
For the markup, divide that profit by the cost and multiply by 100. For the margin, divide it by the price and multiply by 100.
Want to go the other way? To hit a markup, multiply the cost by one plus the markup: a 50% markup on €40 is €40 × 1.5 = €60. To hit a margin, divide the cost by one minus the margin: a 40% margin on €40 is €40 ÷ 0.6 = €66.67.
Our free markup calculator and margin calculator do all of this, with the working shown.
How do you convert markup to margin?
Divide the markup by one plus the markup. A 50% markup is 0.5 ÷ 1.5 = 33.3% margin.
To go from margin to markup, divide the margin by one minus the margin. A 40% margin is 0.4 ÷ 0.6 = 66.7% markup.
That second one catches people out. To keep 40% of every sale, you have to add two-thirds to your cost, not 40%.
Markup vs margin chart
The common markups, and the margin each one actually leaves.
| Markup | Margin it leaves |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 30% | 23.1% |
| 40% | 28.6% |
| 50% | 33.3% |
| 60% | 37.5% |
| 75% | 42.9% |
| 100% | 50.0% |
| 150% | 60.0% |
| 200% | 66.7% |
| 300% | 75.0% |
And the other way round: the margin you want, and the markup it takes to get there.
| Margin you want | Markup you need |
|---|---|
| 10% | 11.1% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 35% | 53.8% |
| 40% | 66.7% |
| 50% | 100.0% |
| 60% | 150.0% |
| 70% | 233.3% |
What margin is a 20% markup?
16.7%. A €100 cost marked up 20% sells for €120, and the €20 profit is a sixth of €120.
A 25% markup gives a 20% margin, and a 30% markup gives 23.1%. The bigger the markup, the wider the gap: a 100% markup, doubling the cost, leaves a 50% margin.
Is markup always higher than margin?
Yes, whenever you make a profit. Both use the same profit, but markup divides it by the cost, and the cost is always the smaller number. Divide by less and you get more.
That’s exactly why the mix-up flatters you. Quote yourself the markup and your business looks healthier than it is.
Why margin matters more than markup
Markup is how you set a price. Margin is what pays the bills.
Rent, wages, software and insurance all come out of the margin. So does the cost of winning each customer. If you advertise, your margin sets the return your ads need just to break even: divide 1 by the margin. At a 33.3% margin, the ads have to bring in €3 for every €1 spent before they make a cent. At 20%, they need €5.
Two shops can run the same campaign, with the same results, and one makes money while the other loses it. The difference is their margin. The ROAS calculator shows the break-even figure for yours.
What is a good markup percentage?
One that leaves a margin big enough to cover everything else you spend. There’s no single right number, and anyone who gives you one without asking about your costs is guessing.
Work backwards instead. Add up what the business costs to run for a year, including marketing. Estimate what you’ll sell. The margin you need is the share of each sale that covers both, plus the profit you want on top. Then use the chart above to turn that margin into a markup.
You’ll hear “keystone” pricing in retail, which just means doubling the cost: a 100% markup and a 50% margin. It’s a starting point, not a rule. Plenty of businesses need more, and some can’t charge it.
Markup, margin and VAT in Ireland and the UK
Work out both before VAT. The VAT on a sale isn’t yours: it belongs to Revenue or HMRC, so counting it as profit flatters every figure.
If your price includes VAT, take it out first. Divide by 1.23 for the Irish standard rate, 1.135 for the 13.5% rate, or 1.2 for UK VAT. A €73.80 shelf price is €60 before Irish VAT at 23%, and it’s the €60 your markup and margin are measured against.
Both calculators do this for you. Pick the VAT rate under More options.
Questions people ask about markup and margin
Is profit margin and markup the same thing?
No. Both describe the same profit, but markup measures it against the cost and margin against the selling price. A €20 profit on a €40 cost is a 50% markup and a 33.3% margin.
How do I convert markup to margin?
Divide the markup by one plus the markup. A 50% markup is 0.5 ÷ 1.5, a 33.3% margin. To convert a margin to a markup, divide the margin by one minus the margin.
What margin is a 30% markup?
23.1%. Something that costs €100 and sells for €130 makes €30, and €30 is 23.1% of €130.
Should I use markup or margin?
Use markup to set a price from a cost, and margin to judge whether the price works. Keep them in separate columns on your price list so nobody reads one as the other.
Why is margin so important?
Because everything else you pay for comes out of it, including the cost of winning customers. Your margin sets the most you can spend on advertising and still make money.
Getting your prices to pay for your marketing
A marketing problem is often a pricing problem in disguise. The ads aren’t working, or they’re working and the money still isn’t there, and the margin turns out to be the reason.
If you want your advertising planned around what your prices can afford, that’s where we start. Or run your own numbers first with the margin calculator.
