Markup vs. margin
Both describe the same profit, measured against different things. Markup is profit as a percentage of cost; margin is profit as a percentage of the selling price. A product that costs $40 and sells for $60 makes $20: a 50% markup ($20 ÷ $40) and a 33.3% margin ($20 ÷ $60). Margin is always the smaller number, and it can never reach 100%.
Confusing the two is one of the most common pricing mistakes. If you want a 40% margin and add a 40% markup, you get a 28.6% margin.
The formulas
- Price from markup = cost × (1 + markup)
- Price from target margin = cost ÷ (1 − margin)
- Markup → margin: margin = markup ÷ (1 + markup)
- Margin → markup: markup = margin ÷ (1 − margin)
Which one to use
Markup is convenient at the counter: it starts from the cost you know. Margin is what your accounts, your break-even and your ad maths run on, because overheads and marketing are paid out of a share of each sale. Set prices to hit a margin, then use the break-even calculator to see how many you need to sell, and the ROAS calculator to see what you can afford to spend on ads at that margin.