What is the difference between margin and markup?

The denominator. Markup divides profit by cost, margin divides profit by selling price. On a £10 item sold for £15 the profit is £5 either way, but that is a 50% markup and a 33.3% margin. Markup is always the larger number.

How do I convert markup to margin?

Divide the markup by one plus the markup. A 50% markup is 0.5 ÷ 1.5 = 33.3% margin. Going the other way, divide the margin by one minus the margin: a 40% margin needs a 66.7% markup.

How do I price something to hit a target margin?

Divide the cost by one minus the margin, rather than multiplying by one plus it. For a 40% margin on a £10 cost: 10 ÷ 0.6 = £16.67. Multiplying by 1.4 gives £14, which is only a 28.6% margin, and that single confusion is the commonest pricing error in retail.

What is keystone pricing?

Doubling the cost — a 100% markup, which is a 50% margin. It survives as a rule of thumb because it is easy and because 50% has historically been about what a retailer needs to cover premises, staff and shrinkage. Whether it fits your business depends entirely on your cost structure rather than on tradition.

Why does a small discount cost so much profit?

Because the discount comes out of the margin, not out of the cost. On a product with a 33% margin, a 20% discount removes about 60% of the profit — the price falls by 20% but the cost does not move at all. It is why a sale can lift revenue while reducing profit, and why discounting is far more dangerous on thin margins than it looks.

Margin and markup are not the same number

Markup is measured against what you paid; margin against what you charged. A 50% markup is a 33.3% margin, and pricing to the wrong one quietly destroys profit at scale.

Published 12 August 2026

The same profit, two different denominators

Buy something for £10 and sell it for £15. The profit is £5 either way — the two measures disagree only about what to divide it by.

Markup divides profit by cost: 5 ÷ 10 = 50%. Margin divides profit by price: 5 ÷ 15 = 33.3%.

Neither is wrong. They answer different questions. Markup is the buyer's view — how much did I add to what I paid. Margin is the accountant's view — how much of the money that came in did I keep. Trouble starts when one person quotes a number and another reads it as the other measure.

Converting between them

From markup to margin: margin = markup ÷ (1 + markup). A 50% markup gives 0.5 ÷ 1.5 = 33.3%.

From margin to markup: markup = margin ÷ (1 − margin). A 40% margin needs 0.4 ÷ 0.6 = 66.7% markup.

A few worth knowing by heart, because they come up constantly: a 25% markup is a 20% margin. A 33% markup is a 25% margin. A 50% markup is a 33% margin. A 100% markup — keystone, doubling the cost — is a 50% margin. The gap widens as the numbers grow, which is exactly why the error costs more on higher-margin goods.

How the mistake actually happens

A buyer is told to hit 40% and applies it as a markup, because that is how buyers think. Cost £10 becomes price £14. The finance team expected a 40% margin, which needed a price of £16.67. Every unit is £2.67 light, and nobody notices until the year-end margin comes in at 28.6%.

The reverse error is rarer but sillier: applying a margin percentage as a markup produces prices that are too high, and the symptom is losing tenders you should have won.

It compounds with discounting. A 20% discount off a product carrying a 33% margin does not remove 20% of the profit — it removes about 60% of it, because the discount comes entirely out of the margin rather than being shared with the cost. This is the arithmetic behind sale periods that increase revenue and reduce profit at the same time.

Working back from a target

To price for a margin, divide rather than multiply: price = cost ÷ (1 − margin). For a 40% margin on a £10 cost, that is 10 ÷ 0.6 = £16.67. Multiplying by 1.4 gives £14 and a 28.6% margin, which is the error above.

For a recommended retail price, remember there are usually two margins stacked: yours and the retailer's. A wholesale price that leaves you 40% and the retailer 50% means the RRP is roughly 3.3 times your cost, and it is worth checking that the resulting shelf price is one anyone will pay before committing to the cost base.

Common questions

What is the difference between margin and markup?: The denominator. Markup divides profit by cost, margin divides profit by selling price. On a £10 item sold for £15 the profit is £5 either way, but that is a 50% markup and a 33.3% margin. Markup is always the larger number.
How do I convert markup to margin?: Divide the markup by one plus the markup. A 50% markup is 0.5 ÷ 1.5 = 33.3% margin. Going the other way, divide the margin by one minus the margin: a 40% margin needs a 66.7% markup.
How do I price something to hit a target margin?: Divide the cost by one minus the margin, rather than multiplying by one plus it. For a 40% margin on a £10 cost: 10 ÷ 0.6 = £16.67. Multiplying by 1.4 gives £14, which is only a 28.6% margin, and that single confusion is the commonest pricing error in retail.
What is keystone pricing?: Doubling the cost — a 100% markup, which is a 50% margin. It survives as a rule of thumb because it is easy and because 50% has historically been about what a retailer needs to cover premises, staff and shrinkage. Whether it fits your business depends entirely on your cost structure rather than on tradition.
Why does a small discount cost so much profit?: Because the discount comes out of the margin, not out of the cost. On a product with a 33% margin, a 20% discount removes about 60% of the profit — the price falls by 20% but the cost does not move at all. It is why a sale can lift revenue while reducing profit, and why discounting is far more dangerous on thin margins than it looks.