Profit Margin vs Markup: What Is the Difference?
Margin and markup are related but not interchangeable. Here is how to calculate each one and why the difference matters in pricing.
In this guide
Markup starts with cost
Markup measures how much you add to your cost. If an item costs 100 and you sell it for 125, the profit is 25 and the markup is 25% of cost.
Margin starts with selling price
Profit margin measures profit as a percentage of the selling price. With the same 100 cost and 125 selling price, the margin is 20%, not 25%, because the 25 profit is 20% of the 125 selling price.
Why businesses get caught by this
A person may say “I want a 25% profit” when they actually mean a 25% margin. Those are different targets and lead to different selling prices. Clarifying the term before pricing can prevent avoidable mistakes.
Use both when planning prices
Markup is useful when starting from cost and deciding what to add. Margin is useful when looking at revenue and profitability. A good pricing worksheet often shows both so the numbers can be understood from either direction.
Try the related tool
If you came here because you need to do the calculation or create something now, you can use the matching KingToolsKit tool and then come back to the guide when you want the explanation.
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