Definition:
Margin and markup both describe the relationship between cost and price, but they’re calculated differently. Margin is profit as a percentage of the selling price (profit ÷ price). Markup is profit as a percentage of the cost (profit ÷ cost). A $40 item that costs $20 has a 100% markup but only a 50% margin — the two numbers are never equal except at 0%.
Why It Matters:
- Confusing the two leads to systematically underpriced products — a targeted 50% margin is not the same as a 50% markup.
- Dynamic pricing rules and floor/ceiling guardrails need to reference the same definition consistently across every SKU and channel.
- Retail and finance teams often use markup for cost-plus pricing while reporting profitability in margin — reconciling the two prevents real pricing mistakes.
Example:
A product costs $50 and sells for $80. Markup = ($80 − $50) ÷ $50 = 60%. Margin = ($80 − $50) ÷ $80 = 37.5%. Setting a pricing rule to “60% markup” and a rule to “60% margin” produce very different sell prices ($80 vs. $125) from the same $50 cost.