Markup is your profit divided by what the product cost you. Margin is the same profit divided by what the customer paid. Because they use different bases, the same item always has a bigger markup percentage than margin percentage. A top that costs $20 and sells for $50 has a 150% markup and a 60% margin.
I'm Carina Hatton, boutique owner since 2013 and ecommerce coach since 2019. Mixing these two numbers up is one of the most common pricing mistakes I see, and it is an expensive one. This guide covers the formulas and when to use each. To run your own numbers, use the margin vs markup calculator. Every dollar figure below is a hypothetical example, not a benchmark.
Markup and margin formulas
Both start from the same gross profit. Only the number you divide by changes.
Before you price your next product, run the numbers with the Boutique Profit Margin Calculator so you keep margin protected.
Open the Boutique Profit Margin Calculator →Gross profit = selling price − cost
Markup % = (selling price − cost) ÷ cost × 100
Margin % = (selling price − cost) ÷ selling price × 100
Hypothetical example: a top with a $20 landed cost sells for $50.
- Gross profit: $50 − $20 = $30
- Markup: $30 ÷ $20 × 100 = 150%
- Margin: $30 ÷ $50 × 100 = 60%
Same $30, two percentages. Neither is wrong. They answer different questions.
What's the difference between markup and margin?
| Markup | Margin | |
|---|---|---|
| Measured against | Cost | Selling price |
| Answers | How much did I add on top of cost? | How much of each sale do I keep? |
| Can it pass 100%? | Yes, often does | No, it always stays under 100% |
| Most useful for | Setting a price from an invoice | Checking profit, budgets and reports |
Markup is a pricing tool. You look at the wholesale invoice and decide how much to add. Margin is a profit tool. Your profit and loss statement, your KPIs and most retail reports talk in margin, because they start from sales.
How to convert markup to margin (and back)
Margin = markup ÷ (1 + markup)
Markup = margin ÷ (1 − margin)
Use decimals inside the formula. A 150% markup is 1.5, so margin = 1.5 ÷ 2.5 = 0.60, or 60%. Going the other way, a 60% margin is 0.6, so markup = 0.6 ÷ 0.4 = 1.5, or 150%.
| Markup | Margin | Price on a $20 cost |
|---|---|---|
| 50% | 33.3% | $30 |
| 100% (keystone) | 50% | $40 |
| 150% | 60% | $50 |
| 200% | 66.7% | $60 |
| 300% | 75% | $80 |
Doubling cost is called keystone, which I cover with the other methods in retail pricing. The calculator's converter does this math for any percentage if you'd rather not work it by hand.
How to set a price from a target margin or markup
Price from markup = cost × (1 + markup)
Price from margin = cost ÷ (1 − margin)
Hypothetical example: you want a 60% margin on a $20 item. $20 ÷ (1 − 0.60) = $20 ÷ 0.40 = $50. If you'd set a 150% markup instead, $20 × 2.5 = $50. Same answer, because the two targets are the same thing expressed two ways.
Start from landed cost, not the invoice price. Freight, duties and inbound fees belong in cost, or every percentage looks better than it is. The landed cost calculator adds those in for you.
The markup vs margin mistake that costs money
Here's how it happens. You decide your store needs a 60% margin. You tell yourself "add 60%" and price a $20 item at $20 × 1.6 = $32. That's a 60% markup. The margin is $12 ÷ $32 = 37.5%, a long way from 60%.
Across a full order, that gap is the difference between covering rent and payroll and wondering where the money went. It works in reverse too. A vendor or coach who says "aim for 50%" might mean margin or markup, and those produce very different prices. Always ask which one.
A second trap is discounting. A 30% markdown does not take 30 points off your margin, it takes more. A $50 item with a $20 cost drops to $35 at 30% off, and margin falls from 60% to $15 ÷ $35 = 42.9%. My retail markdown strategy guide walks through planning for that.
Which one should a boutique use?
Both, for different jobs.
- Pricing new stock: markup or a cost multiplier is quick when you're working through a line sheet.
- Checking profit: margin tells you what share of each sale is left to pay your costs.
- Budgeting and buying: margin lets you turn a retail sales plan into a cost buying budget. At a 60% margin, $10,000 of planned sales needs about $4,000 of stock at cost.
- Comparing categories: use margin percentage and gross profit dollars together. A low-cost item can carry the highest margin and still earn the fewest dollars per sale.
Pick one language for your team and your spreadsheets. Most of the confusion comes from switching between the two without saying so. If you want all the core formulas in one place, see retail math formulas.
Markup vs profit margin: gross, not net
When retailers compare markup and margin, they almost always mean gross margin: selling price minus product cost. Net profit margin is different. It takes out everything else too, like rent, payroll, software, card fees and advertising. A product can have a healthy gross margin while the business still loses money. The break-even calculator shows how much margin has to cover once those costs are added.