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Markup vs. Margin: The Most Common Pricing Confusion
Markup and gross margin both measure profitability but on different bases:
Markup % = (Price - Cost) / Cost × 100
Gross Margin % = (Price - Cost) / Price × 100
Why Markup Always Exceeds Margin
For any product where Price > Cost, Markup % > Margin %. This is because markup divides by the smaller number (cost), while margin divides by the larger number (price).
| Markup | Equivalent Margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 100% | 50% |
| 200% | 66.7% |
| 400% | 80% |
When to Use Each
- Markup: When starting from cost and deciding on a price (retail, manufacturing)
- Margin: When reporting profitability, comparing businesses, or setting financial targets