Markup vs. margin: what's the difference
Markup is the percentage added to cost to reach the price. Margin is the percentage of the selling price left after taking out the cost. Both use the same numbers but start from different bases: markup divides by cost, margin divides by price.
| Formula | Cost R$60, price R$100 | |
|---|---|---|
| Markup | (price − cost) ÷ cost | 40 ÷ 60 = 66.7% |
| Margin | (price − cost) ÷ price | 40 ÷ 100 = 40% |
The classic mistake
Wanting a 40% margin and applying a 40% markup. With a cost of R$60, a 40% markup gives a price of R$84. The real margin is 24 ÷ 84, or 28.6%, well below what you wanted.
How to convert
- From margin to markup: markup = margin ÷ (1 − margin). For a 40% margin, markup is 0.40 ÷ 0.60 = 66.7%.
- From markup to margin: margin = markup ÷ (1 + markup). For a 66.7% markup, margin is 0.667 ÷ 1.667 = 40%.
In practice, many people use markup as a multiplier: price = cost × 1.667. It’s the same calculation.
Both numbers help build a price from cost, but neither tells you whether the customer will pay it. That is what willingness to pay is for.