Profit Margin vs Markup: Formulas and Pricing Examples

Learn the difference between profit margin and markup, calculate both from selling price and cost, and avoid pricing mistakes.

Published October 18, 2026

Margin and markup use different denominators

Profit margin and markup both compare profit with a monetary base, but the base is different. Margin divides profit by selling price. Markup divides profit by cost. A 25% markup is therefore not the same as a 25% margin.

Calculate profit, margin and markup

For a unit that costs $80 and sells for $100:

Profit = selling price − cost = $20

Profit margin = profit ÷ selling price × 100 = 20%

Markup = profit ÷ cost × 100 = 25%

Set a selling price from target margin

To achieve a target gross margin m expressed as a decimal:

Selling price = cost ÷ (1 − m)

At $80 cost and 20% target margin, price must be $100. In contrast, pricing at a 20% markup gives $80 × 1.20 = $96, which corresponds to a margin of only about 16.67%.

Know which costs are included

A basic gross-margin calculation often treats cost of goods sold differently from operating expenses, marketing, payment processing, taxes and financing. A unit-level calculator may not estimate net business profit. Decide which costs belong in your model before comparing products or prices.

Common numerical edge cases

A zero selling price makes the standard margin percentage undefined, and a zero cost makes markup undefined. A selling price below cost produces negative profit. Use a sensible treatment of such inputs rather than forcing a percentage that does not make mathematical sense.

Use the result for better decisions

Compare prices on a consistent cost basis, consider discount scenarios and check whether desired sales volume is realistic. Margin is a ratio, not an assurance that the business will be profitable after all expenses.

Use the Profit Margin Calculator to compare selling prices, costs and margin or markup assumptions.

← Browse all guides