Markup vs. margin: what's the difference?
Both describe the same dollar profit, but measure it against different bases:
- Markup is profit as a percentage of cost. It answers "how much do I add to what I paid?"
- Gross margin is profit as a percentage of the selling price. It answers "how much of each sale do I keep?"
Because price is always bigger than cost, margin is always smaller than markup. A product that costs $40 and sells for $60 has a 50% markup but only a 33.3% margin. If you target a "50% margin" but apply a 50% markup, you'll price too low and earn a third less profit than planned.
Markup and margin formulas
Markup % = Profit ÷ Cost × 100
Margin % = Profit ÷ Price × 100
Price from markup = Cost × (1 + Markup ÷ 100)
Price from margin = Cost ÷ (1 − Margin ÷ 100)
Example: you buy a product for $40 and want a 40% gross margin.
- Price = $40 ÷ (1 − 0.40) = $66.67
- Profit = $66.67 − $40 = $26.67
- Markup = $26.67 ÷ $40 = 66.7%
Markup to margin conversion table
| Markup | Margin | Margin | Markup needed |
|---|---|---|---|
| 10% | 9.1% | 10% | 11.1% |
| 20% | 16.7% | 15% | 17.6% |
| 25% | 20.0% | 20% | 25.0% |
| 30% | 23.1% | 25% | 33.3% |
| 40% | 28.6% | 30% | 42.9% |
| 50% | 33.3% | 35% | 53.8% |
| 60% | 37.5% | 40% | 66.7% |
| 75% | 42.9% | 50% | 100.0% |
| 100% | 50.0% | 60% | 150.0% |
| 150% | 60.0% | 70% | 233.3% |
| 200% | 66.7% | 80% | 400.0% |
Typical markups by industry
Markups vary enormously with inventory risk, volume and overhead. These are common rules of thumb, not targets:
| Business | Typical markup | Notes |
|---|---|---|
| Grocery | 15%–30% | High volume, thin margins |
| Consumer electronics | 10%–40% | Accessories carry much higher markups than devices |
| General retail / boutiques | 50%–100% | "Keystone" pricing = 100% markup (double the cost) |
| Furniture and jewelry | 80%–200%+ | Slow inventory turnover |
| Restaurants (food) | 200%–300% | Food cost targeted at roughly 28%–35% of menu price |
| Beverages / bar | 300%–500% | Pour cost often 18%–24% |
| Handmade / Etsy | 100%–300% on materials | Price must also cover your labor, fees and shipping |
What your price needs to cover
"Cost" in a markup calculation usually means the direct cost of the item (cost of goods sold). Your gross profit then has to pay for everything else: rent, wages, marketing, payment processing (typically 2.5%–3.5% of each card sale), marketplace fees, shipping, returns and taxes. A healthy gross margin for many small retailers is 40%–60% precisely because operating costs take such a large share.
- Include hidden costs in "cost": inbound freight, packaging and marketplace fees per unit.
- Check competitor prices: markup sets a floor; the market sets the ceiling.
- Think about discounts: a 20% off sale on a 40% margin product halves your profit per unit.
Frequently asked questions
How do I calculate a 30% markup?
Multiply the cost by 1.30. A $50 item with a 30% markup sells for $65, and the profit is $15.
Is a 50% markup the same as a 50% margin?
No. A 50% markup on $100 gives a $150 price (33.3% margin). A 50% margin requires a $200 price, which is a 100% markup.
How do I calculate selling price from cost and margin?
Divide the cost by (1 − margin). For a $30 cost and a 25% margin: $30 ÷ 0.75 = $40.
What is keystone pricing?
Keystone pricing means doubling the wholesale cost — a 100% markup, which equals a 50% gross margin. It's a common starting point in retail.
What is a good profit margin?
It depends on the industry. Gross margins of 40%–60% are common in retail, while grocery stores often run 20%–30%. Net profit margin after all expenses is much lower — often 2%–10% for small businesses.