Markup vs. Margin: What Is the Difference?
Markup and margin use different denominators. Learn how to convert between them so your pricing targets make sense.
The key difference
Markup is profit divided by cost. Gross margin is gross profit divided by selling price. Because they use different denominators, a 30% markup does not produce a 30% margin.
Example: $70 cost, $100 selling price
Gross profit is $30. Markup is $30 ÷ $70 = 42.86%. Gross margin is $30 ÷ $100 = 30%. Both describe the same product, but they answer different questions.
Pricing for a target margin
If unit cost is $70 and you want a 30% gross margin, price = cost ÷ (1 − target margin) = $70 ÷ 0.70 = $100. A simple 30% markup would price the item at $91 and produce only about 23.08% gross margin.
When to use each
Use markup when deciding how much to add to cost; use margin when evaluating what share of sales remains as gross profit. Clearly state whether your goal is gross or net margin.
Calculate your price
Try the free pricing calculator. If you manage many products, the toolkit helps you keep prices and costs organized.
Examples are illustrative and use the assumptions stated. Business results vary with actual costs, taxes, and operating conditions.