The short answer: markup is profit as a percentage of cost; margin is profit as a percentage of the selling price. They are never the same number. A 50% markup gives you a 33% margin — and your rent, wages and bills are paid out of margin.
A worked example
Example numbers: a shirt costs you $10. You add 50% and sell it for $15. Profit is $5.
- Markup = profit ÷ cost = $5 ÷ $10 = 50%
- Margin = profit ÷ selling price = $5 ÷ $15 = 33%
Markup to margin, at a glance
| Markup | Real margin |
|---|---|
| 25% | 20% |
| 50% | 33% |
| 100% | 50% |
| 150% | 60% |
| 200% | 67% |
Formula: margin = markup ÷ (1 + markup).
How to price for the margin you want
Turn it around: price = cost ÷ (1 − margin). For a true 50% margin on a $10 item, the price is $10 ÷ 0.5 = $20, not $15. For 40%, it’s $16.67; for 30%, $14.29.
Why it matters
An owner who thinks “I add 50%, so I make 50%” is planning on a margin they don’t have. Across a whole shop, that gap is the difference between a good year and a confusing one. Set your target margin first, then price from it.
Related: pricing your products · tracking profit per product.