Margin vs markup: why 50% markup is 33% margin, and how to price from either
This article is general information, not financial, tax or legal advice. Rules and rates differ by country and change over time; the figures here illustrate the mechanics. For decisions involving real money or legal obligations, check the current official rules or consult a professional.
A product costs £60 and sells for £90. Markup is 50%; margin is 33%. Both are true, both describe the same £30, and businesses that mix them up price too low by exactly the difference. This guide gives the definitions, the conversion, and the pricing method; the margin calculator does the sums. General information, not financial advice.
Two ratios, one gap
Markup is the gap as a percentage of cost: (price − cost) ÷ cost. Margin is the gap as a percentage of price: (price − cost) ÷ price. Same £30 profit; different denominators. Markup answers "how much did I add to the cost?"; margin answers "how much of each pound of revenue is profit?". Accountants, investors and the break-even formula (How to calculate your break-even point (and what it doesn't tell you)) speak in margin; trades and retail buying often speak in markup, which is where the confusion enters.
Converting between them
Margin = markup ÷ (1 + markup); markup = margin ÷ (1 − margin), with both as decimals.
- 25% markup → 20% margin
- 50% markup → 33.3% margin
- 100% markup (doubling, "keystone") → 50% margin
- 150% markup → 60% margin
- 20% margin → 25% markup
- 40% margin → 66.7% markup
- 60% margin → 150% markup
Margin can never exceed 100%; markup has no ceiling. The two converge for small numbers (10% markup is 9.1% margin) and diverge fast above that.
The mistake that under-prices
A business decides it needs a 40% margin to cover overheads and profit, then prices by adding 40% to cost: £60 becomes £84. Actual margin: 24 ÷ 84 = 28.6% — eleven points short, on every sale, invisibly. The correct price for a 40% margin is cost ÷ (1 − 0.40) = £100. The reverse error (applying a margin target as a markup) over-prices and loses sales less silently. When someone says "40%", ask which — the answer changes the price by a fifth. The percentage calculator and How to calculate percentages cover the general "percent of what?" trap.
Gross margin, net margin, contribution
Gross margin uses the direct cost of the goods only. Contribution margin also subtracts the variable costs of selling — payment fees, shipping, packaging, commission — and is the figure that matters for pricing and break-even. Net margin subtracts everything including rent, salaries and tax, and is the business's overall profitability. A 60% gross margin can be a 5% net margin; retail typically runs 30–50% gross and 2–5% net, software 70–90% gross. Compare like with like, and know that ROAS explained: the number every ad platform shows, and the one it doesn't needs contribution margin, not gross, to say whether ads are profitable.
Pricing from a target
Price = cost ÷ (1 − target margin). For a 45% margin on a £22 cost: 22 ÷ 0.55 = £40. Include all variable costs in "cost" so the margin is a contribution margin. Then check the market: a price the arithmetic requires and the customer won't pay means the cost or the model is wrong, not the customer. Discounts come straight off margin — a 10% discount on a 40% margin item cuts profit by a quarter — which the discount calculator makes visible before a sale is announced. VAT sits on top of price and outside margin (the VAT calculator); price ex-VAT when working out either.
Sources and further reading
The claims in this guide rest on these references, which were checked when the guide was last updated. Spotted an error? The contact page says how to report it.