Quick answer: Margin and markup both compare profit with another number, but their denominators are different. Margin uses selling price; markup uses cost.
Try it: Open the free BuzBolt Profit Margin Calculator. No signup is required.
The difference in one example
A product costs $50 and sells for $75. The gross profit is $25.
- Gross margin: $25 ÷ $75 × 100 = 33.33%.
- Markup: $25 ÷ $50 × 100 = 50%.
The profit amount is identical; only the reference amount changes. Margin describes the profit as a share of sales. Markup describes the profit relative to cost.
Formulas
Margin (%) = (selling price − cost) ÷ selling price × 100.
Markup (%) = (selling price − cost) ÷ cost × 100.
If the denominator is zero, the corresponding percentage is undefined. Do not silently replace it with zero.
Markup-to-margin conversion chart
| Markup on cost | Equivalent gross margin |
|---|---|
| 10% | 9.09% |
| 20% | 16.67% |
| 25% | 20.00% |
| 30% | 23.08% |
| 50% | 33.33% |
| 100% | 50.00% |
Use the decimals in the conversion formulas: margin = markup/(1+markup) and markup = margin/(1-margin).
Pricing to reach a target gross margin
Suppose you know the relevant cost is $70 and you want a 30% gross margin. Set price to 70/(1-0.30) = $100. The dollar profit is $30, which is 30% of the selling price. Compared with cost, however, the markup is $30/$70 = 42.86%.
Applying a 30% markup instead would produce $91, not $100. That is why a spreadsheet column labelled only “30%” is risky.
Where each measurement helps
Margin is useful when comparing gross profit to the amount sold. Markup is useful when starting from a cost and adding a price increment. Both can be useful together; neither alone decides a suitable selling price or captures every business expense.
Excel and Google Sheets
For cost in A2 and selling price in B2:
- Margin:
=IF(B2=0,"N/A",(B2-A2)/B2) - Markup:
=IF(A2=0,"N/A",(B2-A2)/A2)
Format the result cells as percentages. Keep labels explicit and use the same currency for cost and price.
Common mistakes
- Saying “30% margin” when the calculation used a 30% markup.
- Omitting which costs were included.
- Comparing percentages computed from different price bases.
- Using a zero-cost or zero-price result as if the normal formula still applied.
Two ways to check a proposed price
Start from a cost of $80. A 25% markup adds $20, giving a $100 price. That yields a 20% margin because the $20 profit is one-fifth of the $100 selling price. If you instead wanted a 25% gross margin, you would divide $80 by 0.75, giving approximately $106.67 before any chosen rounding. The results are materially different even though both calculations mention 25%.
If a quotation or worksheet uses “margin” and “markup” in different places, write out the denominator. “Profit divided by selling price” and “profit divided by cost” are much harder to mix up than the labels alone.
Think about precision
A conversion chart is a quick reference, not a pricing instruction. For target margins that produce repeating decimals, make a conscious rounding decision and then recalculate the actual margin from the rounded price. This makes the final figure transparent rather than pretending a rounded price achieves an exact target.
More reading
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