Guide
Profit Margin vs Markup: What's the Difference?
Updated 3 min readBy the ZIYNU team
The short answer
Markup compares profit with what an item cost you; margin compares profit with what you sold it for. Buy for 800 and sell for 1,200 and your profit is 400 — a 50% markup but only a 33.3% margin. To hit a target margin, divide the cost by (1 − margin): a 40% margin on an 800 cost means a price of 1,333.
The two formulas
- Profit = Selling price − Cost
- Markup = Profit ÷ Cost × 100
- Margin = Profit ÷ Selling price × 100
Both use the same profit. The only difference is what you divide by. Because the selling price is always bigger than the cost when you make a profit, the margin is always the smaller number.
A worked example
You buy a shirt for Rs 800 and sell it for Rs 1,200. Your profit is Rs 400. Divided by the cost (800), that's a 50% markup. Divided by the price (1,200), it's a 33.3% margin. Same shirt, same profit — two different percentages.
Converting between markup and margin
- Margin = Markup ÷ (100 + Markup) × 100
- Markup = Margin ÷ (100 − Margin) × 100
| Markup | Margin | Price for a cost of 1,000 |
|---|---|---|
| 10% | 9.1% | 1,100 |
| 25% | 20% | 1,250 |
| 50% | 33.3% | 1,500 |
| 100% | 50% | 2,000 |
| 200% | 66.7% | 3,000 |
The mistake that costs money
Suppose you want to keep 30% of every sale as profit, so you add 30% to your cost. A 1,000 cost becomes a 1,300 price — but your profit of 300 is only 23% of the price, not 30%. To really keep 30% of the selling price, divide instead: 1,000 ÷ (1 − 0.30) = 1,429.
Include every cost
Margins are only as honest as the cost you put in. For one sale, include the product or materials, packaging, delivery, marketplace and payment fees, and any tax you pay. Leaving out a 10% platform fee can turn a healthy-looking margin into a loss.
For freelancers the same logic applies to services: if a platform keeps 20% of each order, a 100 order leaves you 80. The Fiverr Fee Calculator works backwards from the amount you want to receive.
Margin is not your final profit
The margin on a single item is your gross margin. Rent, salaries, electricity and advertising come out of it before you see real profit, so a business needs gross margins comfortably above zero to cover those overheads.
Setting a price for a target margin
- Add up the full cost of one sale, including fees and delivery.
- Decide the margin you need, for example 35%.
- Divide the cost by (1 − margin as a decimal). A cost of 650 with a 35% margin gives 650 ÷ 0.65 = 1,000.
- Round to a sensible price, then recheck the margin with the rounded figure.
The Profit Margin Calculator does steps 3 and 4 for you: choose “Price for a margin”, enter your cost and target, and it shows the price, profit and markup.
Common questions
Can a margin be more than 100%?
No. A 100% margin would mean the whole price is profit and the item cost nothing. Markup has no such limit — buying at 100 and selling at 500 is a 400% markup, but an 80% margin.
How does a discount affect my margin?
More than people expect. If an item costs 800 and sells for 1,333 (a 40% margin), a 10% discount brings the price to 1,200 and the margin down to 33.3%. Your profit falls from 533 to 400 — a quarter of it gone from a 10% discount. Check discounts with the Discount Calculator before promising them.
What margin should I aim for?
There's no universal figure. It depends on your overheads, how competitive your market is and how much each sale costs to make. Start from your real costs, compare with similar sellers, and make sure what's left after every cost is worth your time.