Profit margin vs markup: the difference that costs sellers money

Two simple definitions

• Profit = selling price − cost.
• Margin = profit ÷ selling price × 100. How much of every unit of money you take in stays as profit.
• Markup = profit ÷ cost × 100. How much you added on top of what you paid.

Both numbers are correct, but they measure different things. When you make a profit, markup is always the larger figure, because it divides by a smaller number.

Where the mistake happens

Say you want a 25% margin. You take the cost of 80, add 25% and get a price of 100. You think your margin is 25%, but it is really only 20%. The gap looks small on one product, but it adds up across hundreds of orders.

To actually get a 25% margin on a cost of 80, the price has to be 80 ÷ 0.75, about 106.67. That reverse calculation is exactly what the Selling-price calculator does.

Work it out yourself

1. Open the Profit margin calculator.
2. Type the cost and the selling price, and pick a currency for display only.
3. Three numbers appear straight away: profit, margin and markup.

Edge cases the calculator handles

• If the selling price is zero, margin is undefined, and the calculator says so plainly instead of showing a meaningless number.
• If the cost is zero, markup is undefined for the same reason.
• A loss is shown with a clear minus sign, not hidden inside a positive number.
• Arabic-Indic digits such as ٨٠ and ١٠٠ are accepted.

Which number should you use?

Use margin when you think about the health of your business and compare products, because it tells you your share of each sale. Use markup for quick pricing from the cost. What matters is knowing which one you mean when you say “I make 25%”. And before you announce a discount, check what it does to your margin with the Discount calculator.