A shop owner sells handmade candles costing $70 each. She wants a 30% return, so she adds 30% and prices at $91. She just cost herself $9 per candle — $9,000 on a thousand sales. She mixed up profit margin and markup.
Profit margin vs markup: what each measures
- Profit margin = profit ÷ revenue (selling price). “Of every dollar collected, how much do I keep?”
- Markup = profit ÷ cost. “For every dollar spent, how much extra do I charge?”
Margin = (Price − Cost) ÷ Price × 100 | Markup = (Price − Cost) ÷ Cost × 100
The worked example: $70 cost, $100 price
Profit: $100 − $70 = $30. Margin: $30 ÷ $100 = 30%. Markup: $30 ÷ $70 = 42.9%. Same $30 profit — different denominators.
The trap: pricing for “30%” with a 30% markup gives $91, but the real margin is ($91−$70) ÷ $91 = 23.1%. The true 30%-margin price: $70 ÷ (1 − 0.30) = $100. Check with a profit margin calculator.
Converting between them
Markup → margin
Margin = Markup ÷ (1 + Markup). A 50% markup → 0.50 ÷ 1.50 = 33.3% margin.
Margin → markup
Markup = Margin ÷ (1 − Margin). Want 40% margin on $70 cost? 0.40 ÷ 0.60 = 66.7% markup → price $116.67.
Which one should you use?
Use margin for business decisions (targets, investors, comparing products). Use markup when building a price from a cost (supplier invoices, keystone pricing). Decide with margin, calculate with markup.
Three traps that catch real businesses
Trap 1: Discounts. A 20% sale on the $100 candle drops margin from 30% to ($80−$70) ÷ $80 = 12.5%. Check with the discount calculator before any sale.
Trap 2: Averaging margins. 20% and 40% margin products don’t average to 30% unless quantities are identical.
Trap 3: Gross vs net margin. Gross = revenue minus cost of goods. Net subtracts rent, wages, marketing, taxes too — always lower.
Keep arithmetic honest with a percentage calculator.
Stop guessing your margins
The free Profit Margin Calculator handles margin, markup, and conversions instantly. Pair it with the other free business and finance tools.
Frequently asked questions
Is 50% markup the same as 50% margin?
No — 50% markup on cost = 33.3% margin. To keep half of every sales dollar you need 100% markup (double the cost).
Which should I use when setting prices?
Decide with margin (from your targets), calculate with markup (from your costs).
Can margin be higher than markup?
No — markup divides by the smaller number (cost), so it’s always higher for the same sale.
Can margin be over 100%?
Gross margin approaches 100% only as cost approaches zero. Markup has no ceiling.
How do discounts affect margin?
More than they feel: 20% off a 30%-margin product leaves 12.5% margin. Recalculate on the discounted price first.