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Margin vs Markup, and Why the Difference Costs Money
These are two different numbers describing the same sale, they are close enough to be confused, and confusing them is one of the most expensive small mistakes in small business.
8 min read · updated 8 August 2026 · links to 11 tools
In short
Margin is profit divided by the selling price; markup is profit divided by the cost. A 50% markup is only a 33.3% margin. To price for a target margin, divide cost by (1 − margin), never multiply cost by (1 + margin) — that second formula is the error, and at a target of 50% it underprices by a third.
The two formulas, and the one that goes wrong
Both describe the same sale. They differ only in what they divide by.
Margin = (price − cost) ÷ price. It answers "what share of the money coming in do I keep?" — which is the question that matters, because every other cost in the business is paid out of revenue.
Markup = (price − cost) ÷ cost. It answers "how much did I add on top?" — which is the question that is easy to calculate at the point of pricing.
The error is pricing for a margin using the markup formula. Someone who wants a 50% margin on a £10 item multiplies by 1.5 and prices at £15. But £15 with a £10 cost is £5 of profit on £15 of revenue — a 33.3% margin. The correct calculation is £10 ÷ (1 − 0.5) = £20.
That is not a rounding error. It is a third of the intended gross profit, on every unit, permanently.
The conversion table worth memorising
Read the 100% row twice. Doubling your cost gives a 50% margin, not 100%. That single line resolves most of the confusion, and it is the reason "keystone pricing" — retail at twice wholesale — is described as a 50% retailer margin rather than a 100% one.
Going the other way, markup = margin ÷ (1 − margin). Both directions are in Markup Calculator, and Profit Margin Calculator will also solve for the price that hits a margin you name.
| Markup on cost | Actual margin | Multiply cost by |
|---|---|---|
| 10% | 9.1% | 1.10 |
| 25% | 20.0% | 1.25 |
| 33% | 25.0% | 1.33 |
| 50% | 33.3% | 1.50 |
| 66% | 40.0% | 1.66 |
| 100% | 50.0% | 2.00 |
| 150% | 60.0% | 2.50 |
| 233% | 70.0% | 3.33 |
Why the error compounds downhill
If you only sell direct, the mistake costs you a third of your gross profit and stops there. If anyone resells you, it multiplies.
Suppose a product costs £9.50 to make and you want 50% at wholesale. Priced correctly, wholesale is £19. A shop applying keystone sells at £38, keeping £19 — the 50% retailer margin that stocked goods generally need.
Priced with the wrong formula, wholesale is £14.25. The shop still needs its own margin, so it either sells at £28.50 and you have simply given away £4.75 a unit, or — more likely — it declines to stock you at all, because the retail price the market supports is £38 and it cannot see why it should hand you the difference.
Wholesale Price Calculator builds the whole ladder the correct way and shows what margin the shop is left with, which is the number a buyer will actually judge you on.
Most retailers will not stock a product that leaves them under 50%. If your RRP cannot support that after your own margin, the unit cost has to come down — raising the retail price is usually not available, because the market set it.
Where the fees go, and why gross margin is not what you keep
Gross margin ignores everything between the sale and your bank account, and on a marketplace that gap is large.
eBay takes 13.25% of the item and the shipping the buyer paid. Etsy takes 6.5% plus a listing fee plus payment processing. Amazon takes a referral fee, then a fulfilment fee, then storage. A product with a comfortable 45% gross margin can land nearer 20% once the platform has been paid.
Marketplace Fee Calculator applies the real fee structure of each and shows what reaches you, including the break-even price for the sale. If you are on one platform, eBay Fee Calculator, Etsy Fee Calculator and Amazon FBA Calculator carry the same engine with that platform's own rates and quirks.
The number to price against is contribution margin — what is left after the product cost and every variable cost of that sale. That is the figure everything downstream is built on.
What contribution margin then decides for you
Once you have it, three questions answer themselves.
How many must I sell? Fixed costs divided by contribution per unit. Break-Even Calculator.
What can I pay for a customer? Break-even ROAS is simply the reciprocal of contribution margin. At a 50% margin, 2× advertising return breaks even; at 25%, you need 4×, and a campaign at 3× is losing money on every sale while looking like a success. Break-Even ROAS Calculator works out the ROAS, the ACOS and the maximum you can pay for an order.
Can I discount? A 20% discount on a 40% margin removes half the profit, not a fifth. Discount Calculator shows what a sale price leaves, and Discount Stacking Calculator shows what happens when a coupon lands on top of an existing promotion — stacked percentages multiply rather than add, so 30% then 20% is 44% off, not 50%.
Frequently asked questions
Is a 50% markup the same as a 50% margin?
No. A 50% markup is a 33.3% margin. Markup divides profit by cost and margin divides it by the selling price, so the same sale produces two different percentages. Pricing for a margin using the markup formula underprices by a third.
How do I price for a target margin?
Divide the cost by one minus the margin as a decimal. For a 40% margin on a £12 cost: 12 ÷ 0.6 = £20. The instinct to multiply by 1.4 gives £16.80, which is a 28.6% margin — comfortably wrong. Profit Margin Calculator will solve for it directly.
What margin do retailers expect?
At least 50% for stocked goods in most categories, and boutiques often want 55–65%. That is keystone pricing — retail at twice wholesale — and it is a floor rather than a target, because the shop is carrying inventory risk, rent and staff out of that share. Wholesale Price Calculator shows what your RRP leaves them.
Why is my margin lower than I calculated?
Almost always fees and shipping. Gross margin stops at the product cost; marketplace commission, payment processing, the shipping label and packaging all come out after it, and on a marketplace they routinely take another 15–25 points. Work with contribution margin instead — Marketplace Fee Calculator gets you to it.