Profit margin vs. markup: the difference that matters

The direct answer

Margin measures profit as a share of revenue. Markup measures profit as a share of cost. They use different denominators, so the percentages are different even when the dollar profit is the same.

A worked example

Suppose an item costs $60 and sells for $100. Profit is $100 − $60 = $40.

• Margin: $40 ÷ $100 × 100 = 40%.
• Markup: $40 ÷ $60 × 100 ≈ 66.67%.

These are hypothetical numbers, not a claim about any business.

Why it matters

Adding 40% to a $60 cost gives an $84 selling price. That produces a margin of about 28.57%, not 40%. To target a 40% margin with a $60 cost, divide $60 by 1 − 0.40 to get $100.

What the calculation leaves out

Include all relevant costs if you want a useful margin. A simple item-level calculation does not automatically include overhead, refunds, shipping, taxes, or payment processing. A zero cost makes markup undefined; zero revenue makes margin undefined.

Try the profit margin calculator with your own numbers. For this guide, the formulas and examples can be checked directly with arithmetic.