In more detail
Markup is measured against cost, so price = cost × (1 + markup). Profit margin uses the same profit but measures it against the price. The two convert with margin = markup / (1 + markup) and markup = margin / (1 − margin). Markup has no upper limit, while margin can never reach 100%. Retail "keystone" pricing, doubling the cost, is a 100% markup and a 50% margin.
Why it matters
To reach a 40% profit margin you need a 66.7% markup, not 40%. Applying the target margin as a markup is a common pricing error that quietly underprices every item, and the gap widens as targets rise.
Example
An item costs $60 and you want a 40% margin. The right price is 60 / (1 − 0.40) = $100, a 66.7% markup. Adding 40% to cost instead gives $84, which is a margin of only 28.57%.
| Markup | Margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
Common confusion
Markup and margin describe the same profit in different ways; always check which base (cost or price) a percentage refers to.