Markup and margin both describe profit, but they use different denominators. Markup compares profit with cost. Margin compares profit with selling price. A seller can state a mathematically correct markup and still misunderstand the percentage of revenue left as profit.
The classic example is a $50 item sold for $100. Profit is $50. Markup is 100% because profit equals the cost. Margin is 50% because profit is half the selling price.
Markup starts with cost
Markup equals profit divided by cost, multiplied by 100. To set a price from markup, multiply total cost by one plus the markup rate. A 25% markup on $80 cost creates a $100 selling price.
- Markup = profit ÷ cost × 100
- Price = cost × (1 + markup rate)
- 100% markup equals 50% margin
- Include direct costs before applying markup
Margin starts with revenue
Margin equals profit divided by selling price, multiplied by 100. To set a price for a target margin, divide total cost by one minus the target margin as a decimal. A $75 cost at a 25% target margin requires a $100 price.
Marketplace fees complicate the price
A marketplace fee based on sale price is variable, so adding the fee percentage directly to cost is not enough. Use the platform calculator to solve for target profit after category fees, processing, promotions, and fixed charges.
Choose the metric that matches the decision
Markup is convenient for applying a pricing rule to cost. Margin is better for reporting how much revenue remains after costs. Use both, label them clearly, and avoid comparing one business's markup with another business's margin.
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Frequently asked questions
Is 50% markup the same as 50% margin?
No. A 50% markup produces a 33.33% margin. A 50% margin requires a 100% markup.
How do I price for a target margin?
Divide total cost by one minus the target margin expressed as a decimal.
Should marketplace fees be included in cost?
They should be included in the profit model, but percentage fees change with price, so use a formula that solves the fee and price together.