Markup vs. Margin: Calculate With the Right Base
Markup uses cost; margin uses selling price. Compare both formulas with a worked $80-cost, $100-price example.
Same dollars, different percentage
You buy an item for $80 and sell it for $100. The difference is $20. Calling that difference “25%” or “20%” can both be mathematically correct, but the two percentages answer different questions. Markup compares the difference with cost; margin compares it with selling price.
In this example, cost means only the chosen $80 input. We have not included tax, platform charges or other business expenses. The prices are fictional and the percentages are calculation examples, not recommended selling margins. Shopify describes the distinction between markup and margin; below, we work through it with our own figures.
Markup: start with the cost
The markup formula is (selling price − cost) ÷ cost × 100. With our inputs, that is ($100 − $80) ÷ $80 × 100 = 25%. You have added a quarter of the cost to reach the selling price.
Check it in reverse: $80 × 1.25 = $100. OpenStax explains markup applied to cost. The key is keeping the base amount visible. If you need a refresher, check the base behind a percentage before calculating its effect.
Margin: start with the selling price
For margin, divide by the selling price instead: (selling price − cost) ÷ selling price × 100. The same $20 difference now gives $20 ÷ $100 × 100 = 20%.
| Measure | Difference | Base | Percentage |
|---|---|---|---|
| Markup | $20 | $80 cost | 25% |
| Margin | $20 | $100 selling price | 20% |
Neither row changes the $20 difference. Only the denominator changes. A line labeled “25%” without its meaning can therefore leave someone reading your estimate with the wrong impression.
Work back from a chosen example margin
Suppose you want to explore what price corresponds to a 25% margin in this simplified model. That leaves cost as 75% of the selling price. Divide the $80 cost by 0.75: $80 ÷ 0.75 = $106.666… or $106.67 rounded to cents.
Multiplying $80 by 1.25 instead gives $100 and a 20% margin, as the table shows. The general formula for a chosen margin below 100% is cost ÷ (1 − margin as a decimal). At 20%, $80 ÷ 0.80 = $100.
Keep extra precision while checking and round the final displayed price. The rounded $106.67 produces a margin very close to 25%, rather than exactly the repeating-decimal result. This is arithmetic for an assumed margin, not a decision about what margin your business should choose.
Define which costs are inside the calculation
A correct formula cannot repair an incomplete cost input. If delivery adds $10 and you choose to include it in cost, the input becomes $90. At the same $100 selling price, the difference is now $10 and the margin is 10%.
For a consistent purchasing comparison, compare cost per usable unit with delivery treated the same way across offers. For a changing assignment, calculate the change in project scope before applying a percentage to its costs.
The margin of this simple example is not the business’s final profit. Other expenses may still apply. State what your cost includes so the reader can interpret the result without guessing.
Label the base as well as the answer
Keep cost, selling price, difference and percentage on separate lines. Write “markup on cost” or “margin on selling price,” not just “profit percentage.” Calculator Duo is an iPhone and iPad app in development with labeled calculation sheets and editable rows. Explore Calculator Duo and join the waitlist if you want updates about keeping those steps together.
Frequently asked questions
Is 25% markup the same as 25% margin?
No. Markup divides the price difference by cost; margin divides it by selling price. A 25% markup in the $80-to-$100 example gives a 20% margin.
What is the margin at $80 cost and $100 selling price?
The difference is $20. Divide $20 by the $100 selling price and multiply by 100: the margin is 20%.
Does a 25% margin mean multiplying cost by 1.25?
No. In this simple model, divide cost by 1 − 0.25. At $80 cost, $80 ÷ 0.75 is approximately $106.67. Multiplying by 1.25 would give a 25% markup.
Is the example margin the final business profit?
No. The example uses a stated cost input. Other business expenses may still reduce the final profit.
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