Financial Glossary
Markup vs. Margin
Markup and margin both measure profit on a sale, but they divide that profit by different amounts. Markup expresses profit as a percentage of cost, showing how much is added on top of what an item cost to produce or buy. Margin expresses the same profit as a percentage of the selling price, showing what share of revenue is left after cost. Because the denominators differ, the same dollar profit always produces a higher markup percentage than margin percentage.
Problem & Application
Owner-operated businesses that price products or services often set a target markup but then report results as a margin, and confusing the two leads to underpricing and thinner profits than expected. A caterer or campground store, for example, may add a 50 percent markup yet realize only a 33 percent margin once revenue is the base. Knowing which figure a price, a quote, or a financial report is using prevents costly mismatches.
In Short
Markup is profit over cost; margin is profit over price, and they are never the same percentage for the same sale. Pricing and reporting both depend on using the right one.