The relationship, precisely
Price = cost × (1 + markup). Margin = (price − cost) ÷ price. A product costing 40 with a 50% markup sells at 60, and the 20 of profit is 33.3% of the price. To achieve a genuine 50% margin, that product must sell at 80, which requires a 100% markup.
The conversion table in the results shows the pattern: margin always sits below markup, and the gap widens as numbers grow. A 100% markup is a 50% margin; a 300% markup is a 75% margin. Margin can never reach 100% no matter the markup.
Which one to use when
Use markup when setting prices, because you start from a known cost and work upward. Use margin when analysing the business, because revenue is the denominator that financial statements, break-even math and investor conversations all share.
The dangerous moment is hearing 'we need a 40% margin' and applying a 40% markup. That yields only a 28.6% margin, and on thin-margin businesses that gap is the difference between profit and loss.
Frequently asked questions
Is a 50% markup the same as a 50% margin?
No. A 50% markup on cost produces a 33.3% margin on price. To get a 50% margin you need a 100% markup. This confusion systematically underprices products.
How do I convert margin to markup?
Markup = margin ÷ (1 − margin). A 40% target margin needs a 66.7% markup. The table in the results covers the common values.
Which should I quote to suppliers or investors?
Financial analysis conventionally uses margin, because statements are revenue-based. Retail buying and pricing conversations often use markup. Always state which one you mean.
What markup should I charge?
Enough that the resulting margin covers your operating costs and profit at realistic volume. Work backwards from the margin your break-even analysis requires.
Can margin exceed 100%?
No. Margin is profit over price and profit is always less than price. Markup, measured against cost, can exceed 100% without limit.
Does discounting change my margin or markup?
Both, and painfully. A 10% discount on a 33% margin product cuts profit by nearly a third. Run planned discounts through the break-even calculator first.