Margin vs markup is a difference of denominator, not of vocabulary. The two percentages can describe the same cost and the same selling price and still disagree. Margin divides the difference by the selling price. Markup divides that same difference by the cost. A 20 percent margin is not a 20 percent markup. Treating them as two names for one ratio is how a price gets set too low or too high.
The figures below are generic arithmetic. They are not a pricing policy, a required accounting presentation, or advice about what margin a business should earn.
Cost is what you paid, or the amount you are treating as the base you marked up. Selling price is what the buyer pays before any separate tax this article is not calculating. The difference is selling price minus cost. If the price is above the cost, the difference is positive. If the price is below the cost, the difference is negative and both percentages are negative. Neither word changes the formula. Only the denominator changes.
margin = (price − cost) ÷ price × 100
markup = (price − cost) ÷ cost × 100Cost has to be greater than zero, because markup divides by it. Price has to be greater than zero, because margin divides by it. A price of zero is not a margin of 100 percent. The division is undefined.
Cost 80.00 and selling price 100.00. The difference is 20.00. Margin is 20.00 ÷ 100.00, which is 20 percent. Markup is 20.00 ÷ 80.00, which is 25 percent. Both statements are true at once. The 20 percent says that one fifth of the selling price is the difference. The 25 percent says the difference is a quarter of the cost.
If someone hears “we make 20 percent” and multiplies the cost by 1.20, they get a price of 96.00, not 100.00. That was a 20 percent markup. The margin on 96.00 is 16.00 ÷ 96.00, about 16.67 percent, not 20. The missing step was asking which number the percent divides by.
Write the percentages as decimals for a moment: 20 percent is 0.20, 25 percent is 0.25. When the price is above the cost and the margin is below 100 percent:
markup = margin ÷ (1 − margin)
margin = markup ÷ (1 + markup)So 0.20 ÷ 0.80 is 0.25, and 0.25 ÷ 1.25 is 0.20. A margin of 100 percent would divide by zero. There is no finite selling price that makes the entire price equal to the difference while the cost is still positive. The Margin and Markup Calculator rejects a margin of 100 percent or more for that reason. A markup of −100 percent would drive the selling price to zero, which the page also rejects.
Cost 100.00 and selling price 80.00. The difference is −20.00. Margin is −20.00 ÷ 80.00, which is −25 percent. Markup is −20.00 ÷ 100.00, which is −20 percent. The signs follow the formulas. They do not, by themselves, say whether selling below cost was a mistake. They only stop the two percentages from being swapped.
The usual slip is to add a margin percent to the cost as if it were a markup. Another is to compare a supplier’s markup with a retailer’s margin and treat the larger number as the larger profit in money. Twenty-five percent of 80.00 and 20 percent of 100.00 are the same 20.00. The percentages disagreed because the bases disagreed.
Percentages are also rounded. The calculator keeps margin and markup to hundredths of a percent, half away from zero, in the same spirit as its cent rounding for money. A displayed pair can be a hair off a hand calculation that stopped at more digits. The identity to trust is the one the page states: margin divides by the selling price, and markup divides by the cost.
You can enter cost and price and read both percentages, or enter cost and one percentage and read the price and the other percentage. The page does not choose a target margin, apply tax, or convert a currency. Use it when you already have the cost and you need the two percentages kept apart.
No. On a cost of 80 and a price of 100, the margin is 20 percent and the markup is 25 percent.
As decimals, markup equals margin divided by 1 minus the margin, when the margin is below 100 percent.
A finite price cannot make the whole price equal the difference while the cost is still positive. The denominator would be zero.
No. It is the arithmetic that keeps the two percentages from being swapped. It is not accounting or legal advice.