Profit Percentage vs. Margin vs. Markup

Profit, margin, and markup are often used as if they were synonyms. They are not. All three start from the same two numbers — cost and selling price — but they do not all divide by the same base. A $20 profit on an item that cost $80 and sells for $100 is a 25% profit percentage, a 25% markup, and a 20% margin. If you ask for “20%” without saying which one, you can price an item incorrectly or read a report incorrectly.

This article keeps the three formulas in one place, works the same examples through each of them, and shows a loss as well as a profit. The profit percentage calculator on this site uses cost as the base, which is the profit-percentage (and markup) definition. There are other profit tools on the site, including a profit and loss calculator, that may present related figures; read the formula on the page you are using so the base is not in doubt.

The three formulas

Let C be the cost and S the selling price. The cash profit is S − C. (If S is less than C, that difference is a loss, and the percentages come out negative or are described as a loss percentage.)

• Profit percentage (on cost) = ((S − C) ÷ C) × 100
• Markup = ((S − C) ÷ C) × 100
• Margin (profit margin on sales) = ((S − C) ÷ S) × 100

Profit percentage on cost and markup are the same formula. Some businesses use “markup” for the amount added to cost to set a price, and “profit percentage” for the result after the sale; when both are measured against cost, the percentages match. Margin uses the selling price as the base, so it is a different, usually smaller, number when there is a profit.

None of these is a “better” definition. They answer different questions: how large is the profit compared with what you paid, and how large is the profit compared with what the buyer paid.

Example: cost 80, selling price 100

• Cash profit: 100 − 80 = 20.
• Profit percentage: (20 ÷ 80) × 100 = 25%.
• Markup: (20 ÷ 80) × 100 = 25%.
• Margin: (20 ÷ 100) × 100 = 20%.

The same $20 is 25% of cost and 20% of sales. If a target was “a 20% profit” and you treated that as a profit percentage on cost, you would set a different price than if the target was a 20% margin. For a 20% margin, the profit must be 20% of the selling price, which means cost is 80% of the selling price, and S = C ÷ 0.80. For C = 80, S = 100, which is this example. For a 20% profit on cost, S = 80 × 1.20 = 96, and the margin would then be 16/96 × 100 ≈ 16.666…%, not 20%.

Example: cost 50, selling price 75

• Cash profit: 25.
• Profit percentage (and markup): (25 ÷ 50) × 100 = 50%.
• Margin: (25 ÷ 75) × 100 = 33.333…%, or 33 1/3%.

A 50% markup is not a 50% margin. This is the usual source of surprise: people hear “we marked it up 50%” and think half of the selling price is profit. Half of the *cost* is profit; the share of the selling price is one third.

Example: a loss — cost 120, selling price 90

• Difference: 90 − 120 = −30 (a loss of 30).
• Loss percentage on cost: (30 ÷ 120) × 100 = 25%, or a profit percentage of −25%.
• Margin on sales: (−30 ÷ 90) × 100 ≈ −33.333…%.

The loss is 25% of what was paid, and about 33.33% of what the item sold for. If cost is 0, a profit percentage and a markup are undefined, because both divide by cost. A margin can still be computed if there is a selling price (it would be 100% if cost is 0 and S is positive), but a zero-cost case should be described in words, not forced through a formula that does not apply. This site’s profit calculator treats a cost of 0 as an error for profit percentage, in line with the calculation methodology.

Converting markup and margin into each other

Because both start from S − C, you can convert when you know one percentage and which base it used.

• If the markup (or profit percentage on cost) is M% as a decimal m = M/100, then margin = m ÷ (1 + m). A 25% markup has m = 0.25, and margin = 0.25 ÷ 1.25 = 0.20 = 20%, which matches the first example.
• If the margin is G% as a decimal g = G/100, then markup = g ÷ (1 − g). A 20% margin has g = 0.20, and markup = 0.20 ÷ 0.80 = 0.25 = 25%.

These conversions fail if you try to convert a 100% margin (which would mean cost is 0) or a markup that does not correspond to a real price. They are bookkeeping identities, not extra assumptions about a business.

Pricing from a target percentage

• Target profit percentage or markup on cost: selling price = cost × (1 + m). For a 25% markup on 80: 80 × 1.25 = 100.
• Target margin on sales: selling price = cost ÷ (1 − g). For a 20% margin on a cost of 80: 80 ÷ 0.80 = 100.

Use the formula that matches the target you were given. If someone says “we need 20%” and does not say “of cost” or “of sales,” ask. The two prices, 96 and 100 in the earlier illustration, are not close enough to treat as interchangeable.

How this relates to ordinary percentage change

Profit percentage on cost is a percentage change from cost to selling price: ((S − C) ÷ C) × 100. That is the same structure as a percentage increase. Margin is not a percentage change from cost; it is “what percent of the selling price is profit.” For the change formula itself, see the percentage change calculator and Percentage increase vs. percentage points if the figures you are comparing are already rates.

Common mistakes

• Using selling price as the base when you were asked for markup, or cost as the base when you were asked for margin.
• Treating “25% profit” as a 25% margin, or the reverse.
• Dividing by cost when cost is 0.
• Adding a margin and a markup as if they could be stacked like two discounts. They are two readings of the same profit, not two successive changes. Successive changes belong in Compound percentage change explained.

Frequently asked questions