What this measures
Markup and margin both describe profit, but they're measured against different numbers. Markup is profit as a share of what something cost you. Margin is profit as a share of what you sold it for. Confusing the two is one of the most common pricing mistakes, because they're never the same percentage for the same sale.
The formula
Margin % = (Price − Cost) ÷ Price × 100
Markup has no ceiling, since cost can be a very small number relative to price. Margin always stays under 100%, since profit can never exceed the revenue it came from.
A quick example
Say something costs you $50 and you sell it for $75. That's a $25 profit either way, but as a percentage it's a 50% markup on cost and only a 33.3% margin on price. Same sale, same dollars, genuinely different percentages depending on which one you're measuring against.
Frequently asked questions
Which one should I use when pricing?
Markup is usually more useful when you're setting a price from a known cost, since it directly tells you how much to add. Margin is usually more useful for reporting and comparing profitability, since most financial statements and industry benchmarks are expressed as margin.
Why is margin always smaller than markup?
Because they use different denominators for the same profit. Margin divides by the selling price, which is always the bigger number once there's any profit at all, so the resulting percentage is always smaller than markup, which divides by the smaller cost figure.
Can markup or margin be negative?
Yes, if you sell below cost. Both formulas still work, they'll just show a negative percentage, which is a real and sometimes intentional situation, like a clearance sale or a loss leader.
Why can't I target a 100% margin?
Margin can only ever approach 100% as price rises toward infinity, it can never actually reach it for a cost above zero. If you need a very high margin, try 90% or 95% instead and see what price that actually requires.