Margin vs Markup: The Difference That Costs Businesses Thousands
A 50% markup is NOT a 50% margin. Confusing them is one of the most expensive mistakes in business.
You buy a product for $60 and sell it for $100. Your profit is $40. Margin: $40/$100 = 40% (profit as percentage of selling price). Markup: $40/$60 = 66.7% (profit as percentage of cost). Same $40 profit, wildly different percentages. If someone tells you to price at a 50% margin but you calculate 50% markup instead, you are charging $90 instead of $120 — leaving $30 per sale on the table.
The Quick Conversion
Margin to markup: Markup = Margin / (1 - Margin). A 40% margin = 0.40 / 0.60 = 66.7% markup. Markup to margin: Margin = Markup / (1 + Markup). A 100% markup = 1.0 / 2.0 = 50% margin. The most common markup in retail is 50% (keystone pricing), which equals a 33.3% margin — not 50%.