Markup vs Margin: What Is the Key Difference?
Mixing up markup and profit margin is one of the most expensive mistakes a retail merchant or e-commerce seller can make. While both terms measure profitability, they use entirely different baseline numbers. If you confuse them when pricing inventory, you will end up earning significantly less profit than planned.
Here is the core difference in one sentence: Markup is profit expressed as a percentage of cost, while profit margin is profit expressed as a percentage of selling price.
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Markup vs Margin Comparison Table
To see how the numbers diverge, look at this comparison across common pricing targets:
| Cost Price | Selling Price | Gross Profit | Markup % (Profit / Cost) | Margin % (Profit / Price) |
|---|---|---|---|---|
| $50.00 | $62.50 | $12.50 | 25.0% | 20.0% |
| $50.00 | $75.00 | $25.00 | 50.0% | 33.3% |
| $50.00 | $100.00 (Keystone) | $50.00 | 100.0% | 50.0% |
| $50.00 | $150.00 | $100.00 | 200.0% | 66.7% |
Why Markup Is Always Higher Than Margin
Because cost price is always smaller than selling price (assuming you sell at a profit), dividing profit by cost will always produce a higher percentage than dividing profit by selling price.
For example, in keystone pricing where you double your product cost (buying an item for $50 and selling it for $100):
- Markup percentage: $50 profit / $50 cost = 100% markup.
- Profit margin: $50 profit / $100 price = 50% margin.
How to Convert Markup to Margin and Vice Versa
If you know your markup percentage and want to find your profit margin, use this algebraic conversion formula:
Conversely, to convert profit margin to markup percentage:
To automate these pricing conversions without manually doing algebra, use our free Margin Calculator.
