"50% markup" and "50% margin" sound like the same thing. They're not — and confusing them can torpedo your business pricing. Here's the difference, the math, and which to use when.
The definitions
Markup: profit as a percentage of cost. (Selling price − cost) ÷ cost × 100.
Margin: profit as a percentage of selling price. (Selling price − cost) ÷ selling price × 100.
Same dollar profit, different percentage depending on the denominator.
Worked example
Cost: $50. Selling price: $75. Profit: $25.
- Markup: $25 / $50 = 50%
- Margin: $25 / $75 = 33.3%
Same product, same numbers, two different percentages. The 50% markup is the same as 33.3% margin.
The conversion math
Convert markup to margin: margin = markup / (1 + markup). 50% markup = 0.5 / 1.5 = 33.3% margin.
Convert margin to markup: markup = margin / (1 − margin). 50% margin = 0.5 / 0.5 = 100% markup.
Markup is always a higher percentage than margin for the same profit. Markup uses the smaller number (cost) as denominator.
Common ratios
| Markup | Margin |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 33.3% | 25% |
| 50% | 33.3% |
| 100% | 50% |
| 200% | 66.7% |
"Keystone pricing" (doubling the cost) is 100% markup or 50% margin. Common in jewelry and apparel.
When to use markup
Markup answers "how much should I add to cost?" Useful when:
- Setting prices. Cost × (1 + markup%) = selling price.
- Negotiating with suppliers. "Our markup is 30%, so if your cost goes up X, our price increases X × 1.3."
- Sales conversations. Some industries quote markups; understand what's being asked.
When to use margin
Margin answers "what percentage of revenue is profit?" Useful for:
- Comparing companies. Margin is the standard metric in financial reporting.
- Internal analysis. "Our gross margin is 40%" is more meaningful than "our markup is 67%."
- Investor conversations. Investors care about margins, not markups.
The pricing trap
If you want a 50% margin, do you mark up 50%? No. You'd mark up 100%.
To target a margin: markup = margin / (1 − margin). For 50% margin, that's 100% markup.
Pricing by mistake here is common. A retailer who wants "50% gross profit" needs a 100% markup, not 50%.
Real-world by industry
| Industry | Typical markup | Typical margin |
|---|---|---|
| Grocery | 10–20% | 9–17% |
| Apparel retail | 100–200% | 50–67% |
| Restaurant food | 200–300% | 67–75% |
| Restaurant alcohol | 500–800% | 83–89% |
| Cars (new) | 8–15% | 7–13% |
| Jewelry | 200–500% | 67–83% |
| Software (B2B SaaS) | varies | 70%+ gross |
Why apparel and jewelry have such high markups: high overhead, fashion risk (returns and obsolescence), low conversion rates.
Restaurant economics example
A burger costs $4 to make (food cost). Restaurant prices it at $14:
- Profit: $10
- Markup: $10/$4 = 250%
- Margin: $10/$14 = 71%
Restaurants need this margin because:
- Rent and utilities ($)
- Labor (often 30%+ of revenue)
- Marketing and overhead
- Profit for owners (usually 5–10% of revenue)
After all overhead, restaurant net margins are typically 3–8%.
Service business: hourly billing
Consultants and lawyers don't have "cost of goods" the same way. Their pricing is more often:
- Hourly rate × hours = revenue
- Salary + overhead + profit = total cost per hour
For a consultant: if your fully-loaded cost is $100/hour and you bill $200/hour, that's 100% markup or 50% margin.
Volume discounts
"10% off if you buy 100" effectively reduces your markup. If your markup was 50% and discount is 10%:
- Original: cost $50, sell $75 (50% markup, $25 profit per unit)
- Discounted: cost $50, sell $67.50 (35% markup, $17.50 profit per unit)
Volume discounts lower per-unit profit. Make sure the volume actually justifies it.
Common mistakes
1. Confusing markup and margin in pricing. "I want 30% profit" — is that markup or margin? Define clearly.
2. Using markup for industry comparison. Different industries have different conventions. Margins are more standardized.
3. Ignoring overhead. Markup should cover all overhead, not just direct costs. A 30% markup might not cover rent, utilities, and salaries.
4. Setting price too low because of low cost. If your cost is $1 and customers value the product at $10, charge $10 — even if it's 900% markup. Pricing should reflect customer value, not just cost-plus.
Calculate it
Our markup calculator handles cost-to-price math. Our margin calculator handles revenue/profit. Use both — they answer different questions.