Margin vs markup: what is the difference?
Margin and markup measure the same profit, but on different bases: margin on the price, markup on the cost. That is why a 40% margin is a 66.67% markup.
TL;DR
Margin and markup are two ways of measuring the same profit: margin measures it on the selling price (margin = profit ÷ price) and markup measures it on the cost (markup = profit ÷ cost). Because the cost is lower than the price, the markup is always larger than the margin: a 40% margin is a 66.67% markup. To convert, use markup = margin ÷ (1 − margin) and margin = markup ÷ (1 + markup). Mixing them up leads to prices that are too low.
Margin and markup: the same profit, different bases
Profit margin and markup describe the same profit on a sale, but they measure it on different bases. Margin measures the profit as a percentage of the selling price; markup measures it as a percentage of the cost1:
| Metric | Formula | Base |
|---|---|---|
| Profit margin | (price − cost) ÷ price | selling price |
| Markup | (price − cost) ÷ cost | cost |
Because the cost is always lower than the selling price, dividing the profit by the cost gives a larger number than dividing it by the price. So the markup is always larger than the margin, and that is where many people go wrong.
From margin to markup
To turn a margin into the equivalent markup, divide the margin by (1 − margin):
Markup = margin ÷ (1 − margin)
For a 40% margin: markup = 0.40 ÷ (1 − 0.40) = 0.40 ÷ 0.60 = 66.67%. You can run this both ways in the margin vs markup converter.
From markup to margin
The other way round, divide the markup by (1 + markup):
Margin = markup ÷ (1 + markup)
A 100% markup is 1.00 ÷ (1 + 1.00) = a 50% margin; a 50% markup is a 33.33% margin. Notice that the margin never reaches 100%: however high the markup, the margin gets close to 100% but never quite there.
Why a 40% margin is not a 40% markup
Take a product that costs €60 (excluding VAT):
- with a 40% markup, the price is 60 × 1.40 = €84 and the profit €24, which is a margin of only 28.6%;
- with a 40% margin, the price is 60 ÷ 0.60 = €100 and the profit €40, which is a markup of 66.67%.
The same percentage, applied to different bases, gives very different prices. Anyone who applies the margin they want as if it were a markup ends up with prices that are too low and too little profit.
Worked example
A shop wants to work with a 40% margin. To set each item’s price from its cost, it first converts the margin into a markup: 0.40 ÷ 0.60 = 66.67%. Then it just multiplies any cost by 1.6667 (or divides by 0.60). On a €60 item the price is €100; on a €75 item the price is €125, always at the same 40% margin.
Margin, markup and VAT
The conversion between margin and markup is percentages only, so it does not depend on VAT. But when you work out the selling price from the cost, always use amounts excluding VAT: VAT is charged to the customer and handed to the State, it is not your profit. To work margins and prices from a cost, use the profit margin calculator; to convert quickly between the two percentages, the margin vs markup converter.
Common mistakes
Using the margin as if it were a markup
Applying “40%” to the cost when you wanted a 40% margin actually gives a margin of only 28.6%. For a 40% margin you need a 66.67% markup.
Thinking markup and margin are the same number
They are the same profit on different bases. The markup is always larger than the margin, and the gap grows with the percentage: a 50% margin is already a 100% markup.
Converting by hand and rounding badly
The conversion has an exact formula (markup = margin ÷ (1 − margin)). Use the converter so rounding errors do not build up and distort the price.
Frequently asked questions
What is the difference between margin and markup?
How do you convert margin to markup?
How do you convert markup to margin?
Why is a 40% margin not a 40% markup?
Is markup always larger than margin?
Related reading & calculators
Sources
- 1.Todos Contam: Portal de educação financeira — Banco de Portugal · retrieved 23 Jun 2026
- 2.IAPMEI: support for small and medium-sized enterprises — IAPMEI, Agency for Competitiveness and Innovation · retrieved 23 Jun 2026
Author / Reviewed by
Author
Thorben Rasmus Idel
Co-founder & writer
Co-founder of Calculadora Capital and the writer behind the methodology on every calculator and article. An entrepreneur and active investor, Thorben founded Idel Versandhandel GmbH, an international trading company operating across 16 countries, and invests across stocks, ETFs and cryptocurrency. He writes the methodology and verifies the math behind each page, drawing on hands-on business and investing experience to keep the tools and explanations grounded in how money, markets and taxes actually work for everyday people in Portugal.
Reviewed by
Nahar Geva
Co-founder & reviewer
Co-founder of Calculadora Capital and the independent reviewer behind every calculator and article. An entrepreneur and active investor, Nahar brings a data- and product-driven mindset together with hands-on experience in the markets — investing across stocks and ETFs as well as cryptocurrency and other digital assets, alongside broader personal finance and real estate. On each page Nahar reviews the methodology and double-checks the math and figures, pressure-testing how the tools and explanations hold up against the way money, markets and taxes actually work for everyday investors.
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