What is the difference between markup and margin?
Markup is profit divided by cost. Margin is profit divided by selling price. Example: if you buy for $60 and sell for $100, your profit is $40. Markup = $40/$60 = 67%. Margin = $40/$100 = 40%. The numbers describe the same profit from different perspectives.
Why does it matter which one I use?
Confusing the two is a costly pricing mistake. If your target is 40% margin but you apply a 40% markup, you actually achieve only 28.6% margin — you're underpricing by over 10 percentage points. Always clarify which metric a price list or supplier quote is using.
How do I convert markup to margin?
Margin = Markup ÷ (1 + Markup). For a 50% markup: 0.50 ÷ 1.50 = 33.3% margin. To go the other way — margin to markup: Markup = Margin ÷ (1 − Margin). For a 40% margin: 0.40 ÷ 0.60 = 66.7% markup.
Which metric do accountants and investors use?
Accountants and investors use gross margin (profit/revenue) because it standardizes profitability against revenue. Markup is more common in operations and purchasing because it starts from cost. Financial statements always report margin.