Margin Uses Revenue; Markup Uses Cost
Profit margin expresses profit as a percentage of selling price or revenue. Markup expresses profit as a percentage of cost. Because the denominators differ, a 25% markup is not the same as a 25% margin.
The calculation describes unit economics from the amounts entered. It does not account for overhead, taxes, returns, payment fees or other operating costs unless those costs are included in the cost figure you provide.
Margin and markup use the same dollar profit but divide it by different bases. That is why a 50% markup is not a 50% margin. This matters in pricing because a business can accidentally underprice an item if it sets a target margin but applies a markup formula instead. When you know the cost and want a target margin, solve for the selling price from the margin relationship; when you know the price and cost, the calculator can show both percentages side by side.
Frequently Asked Questions
Why is markup higher than margin for the same item?
Markup divides profit by cost, while margin divides the same profit by the higher selling price.
Does gross margin equal net profit margin?
No. Gross margin focuses on the entered direct cost relationship; net profit also reflects operating and other expenses.
Why is a 100% markup only a 50% margin?
If an item costs $50 and is marked up by 100%, it sells for $100 and earns $50 profit. That $50 is 100% of cost but only 50% of the $100 selling price.
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