What is markup?
Markup is the amount added to a product's cost to determine its selling price, expressed as a percentage of the cost. The formula is markup percentage = (selling price - cost) / cost. For example, a product that costs $80 to produce or acquire and sells for $100 has a markup of ($100 - $80) / $80 = 25%. Markup answers the question: how much more than what I paid am I charging?
Markup is commonly used in retail, wholesale and manufacturing settings because it is calculated directly from the cost figure a business already knows, making it straightforward to apply consistently across a product catalog. Many industries have conventional markup ranges -- for example, grocery retail commonly operates on relatively thin markups, while some specialty or luxury goods categories carry substantially higher markups -- though specific figures vary widely by business model and competitive environment.
What is margin?
Margin, more precisely gross profit margin, is the proportion of the selling price that represents profit, expressed as a percentage of the selling price rather than the cost. The formula is margin percentage = (selling price - cost) / selling price. Using the same $80 cost and $100 selling price as above, the margin is ($100 - $80) / $100 = 20%, not 25%, even though the dollar profit ($20) is identical in both calculations. Margin answers the question: of every dollar in revenue, how much is profit?
Margin is the figure more commonly used in financial statements, profitability analysis and business valuation, because it expresses profitability relative to total revenue rather than relative to cost, making it more directly comparable to other revenue-based financial metrics such as operating margin and net margin. Confusing margin with markup when setting prices is one of the most common pricing errors made by small business owners.
Why the confusion happens: two different denominators
The core source of confusion is that markup and margin use the same numerator -- gross profit, or selling price minus cost -- but divide it by two different figures: markup divides by cost, while margin divides by selling price. Because selling price is always larger than cost for a profitable product, dividing the same profit dollar amount by a larger number (selling price) always produces a smaller percentage than dividing by a smaller number (cost). This means margin percentage is always mathematically lower than markup percentage for any product sold at a profit, and the gap between the two widens as the percentage itself gets larger.
This has a direct and important business consequence: a business owner who wants to achieve a 30% profit margin but mistakenly applies a 30% markup to cost will fall short of their actual target, because a 30% markup on cost only produces a 23.08% margin on the resulting selling price. Setting prices using the wrong one of the two percentages is a common and costly pricing mistake.
Conversion table: markup to margin and margin to markup
Because markup and margin are mathematically related but not numerically equal, converting between them requires two different formulas: margin = markup / (1 + markup), and markup = margin / (1 - margin), both expressed as decimals before converting back to a percentage. The table below shows how a range of common percentage values convert in each direction.
| Percentage value | If used as markup, equivalent margin | If used as margin, equivalent markup |
|---|---|---|
| 10% | 9.09% | 11.11% |
| 20% | 16.67% | 25.00% |
| 25% | 20.00% | 33.33% |
| 30% | 23.08% | 42.86% |
| 40% | 28.57% | 66.67% |
| 50% | 33.33% | 100.00% |
Worked example: pricing an $80 product
Consider a product with an $80 cost. If a business applies a 25% markup, the selling price is $80 x 1.25 = $100.00, and the resulting margin is ($100.00 - $80) / $100.00 = 20.00%. If instead the business wants a 25% margin, the selling price must be calculated as cost / (1 - margin) = $80 / (1 - 0.25) = $106.67, and the resulting markup on that price is ($106.67 - $80) / $80 = 33.33%.
This example illustrates the practical difference clearly: targeting a 25% markup and targeting a 25% margin on the same $80 cost produce two different selling prices ($100.00 versus $106.67) and two different profit amounts ($20.00 versus $26.67). A business that intends to achieve a specific margin target but instead applies that same percentage as a markup will consistently underprice its products and earn less gross profit than planned.
Which figure should a business use?
Both markup and margin are valid and widely used; the appropriate figure depends on the business question being asked. Markup is useful at the point of setting an individual product's price from its known cost, since it is calculated directly and simply from the cost figure already on hand. Margin is more useful for evaluating overall profitability, comparing performance across products or time periods, and communicating results in financial statements, because it expresses profit as a share of revenue -- the figure most other financial ratios are also based on.
The most important practical safeguard against the markup/margin confusion is to always specify which of the two percentages is being discussed and to double-check which formula -- division by cost or division by selling price -- was used to produce any given percentage figure. Pricing spreadsheets, point-of-sale systems and accounting software sometimes default to one calculation or the other, so verifying the underlying formula before setting prices at scale can prevent a systematic and compounding pricing error.
よくある質問
What is the difference between margin and markup?
Markup is calculated as profit divided by cost: (selling price - cost) / cost. Margin is calculated as profit divided by selling price: (selling price - cost) / selling price. Because selling price is always larger than cost on a profitable sale, margin percentage is always lower than markup percentage for the same transaction. For example, a $20 profit on an $80 cost item selling for $100 is a 25% markup but only a 20% margin.
How do I convert markup to margin?
To convert a markup percentage to its equivalent margin percentage, use the formula margin = markup / (1 + markup), with both expressed as decimals. For example, a 25% markup converts to a margin of 0.25 / (1 + 0.25) = 0.20, or 20%. This conversion works because both figures describe the same dollar amount of profit, just divided by two different denominators -- cost for markup, and selling price for margin.
How do I convert margin to markup?
To convert a margin percentage to its equivalent markup percentage, use the formula markup = margin / (1 - margin), with both expressed as decimals. For example, a 25% margin converts to a markup of 0.25 / (1 - 0.25) = 0.3333, or 33.33%. Because this formula divides by a number less than 1, the resulting markup percentage is always higher than the original margin percentage.
Why does a 50% margin need a 100% markup?
A 50% margin means half of the selling price is profit, which requires the profit to equal the cost itself: on a $50 cost, a 50% margin requires a $100 selling price ($50 cost plus $50 profit), and $50 profit on a $50 cost is a 100% markup. This is a useful sanity check: as the target margin approaches 50%, the required markup approaches 100%, and margins above 50% require markups above 100%, since profit would then exceed the original cost.
Is it better to price using markup or margin?
Neither is inherently better; each is suited to a different purpose. Markup is convenient for setting an individual price directly from a known cost figure. Margin is more useful for assessing overall profitability and is the figure typically used in financial statements and profitability comparisons, since it expresses profit as a percentage of revenue. The key requirement is consistency: a business should clearly define which figure it is using and apply the correct formula, since treating a margin target as if it were a markup percentage will systematically underprice products.
参考文献
- U.S. Small Business Administration. "Price Your Product or Service." SBA.gov.
- Horngren CT, Datar SM, Rajan MV. Cost Accounting: A Managerial Emphasis. 16th ed. Pearson, 2018.
- Drury C. Management and Cost Accounting. 10th ed. Cengage Learning, 2018.
- Investopedia. "Markup vs. Margin: What's the Difference?" Investopedia.