Profit Margin vs Markup — What's the Difference?
These two terms are frequently confused but mean different things. Margin is profit as a percentage of selling price; markup is profit as a percentage of cost price. For the same transaction, markup is always a larger number than margin.
The Formulas
Profit Margin = (Selling Price − Cost Price) ÷ Selling Price × 100
Markup = (Selling Price − Cost Price) ÷ Cost Price × 100
Why It Matters
If you price products using a target markup but report performance using margin, your numbers will look worse than your actual pricing strategy — understanding which metric you're using prevents costly pricing mistakes, especially in retail and e-commerce.
Frequently Asked Questions
Which is better — margin or markup? +
Neither is inherently better; they answer different questions. Use markup when setting prices from cost (cost-plus pricing). Use margin when evaluating overall business profitability or comparing to industry benchmarks, which are usually quoted as margins.
What's a healthy profit margin for retail? +
Retail margins vary widely by category — groceries often run 2-5%, electronics 5-10%, apparel 40-60%, and software/digital products can exceed 80%. Compare against your specific industry benchmark, not a universal number.
If I want a 50% margin, what markup should I use? +
A 50% margin requires a 100% markup. The conversion formula is: Markup % = Margin % ÷ (100 − Margin %) × 100. They're related but not equal.