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Business Glossary
Markup vs Margin — What Is the Difference?
Markup and margin both describe the relationship between cost and selling price — but calculated differently. Markup is calculated on cost. Margin is calculated on selling price. A 50% markup is not the same as a 50% margin. Confusing the two causes systematic underpricing.
The Formula
Markup % = (Selling Price − Cost) ÷ Cost × 100 | Margin % = (Selling Price − Cost) ÷ Selling Price × 100
Worked Example — UK SME
A UK retailer buys for £40, sells for £60. Markup = (£60 − £40) ÷ £40 × 100 = 50%. Margin = (£60 − £40) ÷ £60 × 100 = 33.3%. The same price gives 50% markup but only 33.3% gross margin.
UK Benchmark
📊 To convert markup to margin: Margin = Markup ÷ (1 + Markup). To convert margin to markup: Markup = Margin ÷ (1 − Margin). A 40% target gross margin requires a 66.7% markup. A 50% markup delivers only 33.3% gross margin.
Common Questions
Which should I use — markup or margin?
Use gross margin % for benchmarking, financial reporting, and strategic decisions. Use markup for product pricing if you start from a cost base — but always verify the resulting margin percentage.
How do I set prices to achieve a target gross margin?
Selling price = Cost ÷ (1 − Target Margin). For 40% target margin on a £60 cost: £60 ÷ 0.60 = £100. Using markup formula (£60 × 1.40 = £84) would give only 28.6% margin — 11.4 points short.
Is markup or margin used in UK retail?
UK retail traditionally uses markup for buying and pricing. UK financial reporting always uses margin. This mismatch causes persistent confusion. Always confirm which basis is being used in any commercial conversation.
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