What is Margin vs Markup?
Margin is profit expressed as a percentage of the selling price, while markup is profit expressed as a percentage of the cost price.
Margin and markup both measure profit, but they use different bases for the percentage calculation. Confusing the two is one of the most common pricing mistakes in small business.
Markup: Markup is the percentage added on top of the cost price to arrive at the selling price.
Formula: Markup % = (Profit ÷ Cost) × 100
Example: An item costs £80 and you sell it for £100. Markup = (£20 ÷ £80) × 100 = 25%
Margin (profit margin): Margin is the percentage of the selling price that is profit.
Formula: Margin % = (Profit ÷ Selling Price) × 100
Same example: Cost £80, sell for £100. Margin = (£20 ÷ £100) × 100 = 20%
Why the difference matters: A 50% markup gives you a 33.3% margin — not 50%. If you apply a 30% markup thinking you're achieving 30% margin, your actual margin is only 23%. Over time, this miscalculation erodes profitability.
Quick conversion: | Markup | Margin | |--------|--------| | 20% | 16.7% | | 25% | 20% | | 33.3% | 25% | | 50% | 33.3% | | 100% | 50% |
For freelancers and tradespeople: When pricing work, decide whether you are targeting a margin or a markup, and use the correct formula. If a client asks "what's your margin?" and you quote your markup percentage, you're overstating your profitability.
Examples
A joiner buys materials for £400 and invoices £600 — that's a 50% markup but only a 33.3% margin
A consultant targets a 40% margin, so on a £1,000 project the cost must not exceed £600
A retailer applies a 100% markup (doubles the cost), resulting in a 50% margin
Related Terms
Gross vs Net
Gross refers to the total amount before any deductions, while net is the amount remaining after deductions such as tax, discounts, or expenses.
Invoice
An invoice is a commercial document issued by a seller to a buyer, listing the products or services provided and requesting payment.
Disbursement
A disbursement is a cost you pay on behalf of your client that you then recover through your invoice, passed on at cost without markup.