Margin vs markup: the difference, and how to price so you actually earn what you planned
By SendPay Business · · 2 min read
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Margin and markup both describe profit, but they measure it against different things, and mixing them up is one of the most common ways small sellers end up earning less than they meant to. Here is the difference in two minutes, with the sums shown.
The one-line difference
Margin is profit as a share of the selling price. Markup is profit as a share of what it cost you. Same profit, different bottom line to divide by, so markup is always the bigger number.
A worked example
You buy something for 60 and sell it for 100. Profit is 40.
Margin is 40 ÷ 100 = 40%. Markup is 40 ÷ 60 = 66.7%. Both are correct, and they describe the same sale.
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Where people go wrong
Say you want a 40% margin, and you add 40% to your cost of 60. You charge 84. Profit is 24, which is only a 28.6% margin. You have given away almost a third of the profit you planned, on every sale.
How to price for the margin you want
Divide the cost by 1 minus the margin you want, written as a decimal.
0 of 4 done
Tick each step as you do it, so you can see what is left.
Count every cost
The cost in these sums should include everything each sale costs you: the product, packaging, delivery, and the card fee taken from the payment. If you are VAT-registered, work with prices before VAT, because the VAT is not yours to keep.
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Questions people ask
Is a 50% markup the same as a 50% margin?
No. A 50% markup on a cost of 60 gives a price of 90 and a margin of 33.3%. A 50% margin needs a price of 120, which is a 100% markup.
Which should I use, margin or markup?
Use whichever you like, as long as you know which one you are using. Margin is easier for comparing with your overall profit; markup is quicker when pricing from cost.
Is there a calculator that does this?
Yes. The free profit margin calculator shows margin, markup and profit together, or the price for the margin you want.
Open the calculator →Read next
Spotted a mistake or something out of date? and we'll fix it. How our guides are made
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.