Markup vs margin: why a 50% markup is only a 33% margin (and why it matters).
Markup divides by cost. Margin divides by price. Same numerator, different denominator, two different numbers. A €10 item sold at €15 is a 50% markup and a 33% margin. Confusing the two is the most common pricing mistake in retail.
Markup and margin measure the same thing — the gap between cost and selling price — but they divide that gap by different denominators. Markup divides by cost. Margin divides by price. A €10 item sold for €15 is a 50% markup (€5 ÷ €10) and a 33% margin (€5 ÷ €15). Same sale, two different numbers. The confusion is the single most common source of pricing mistakes in small retail. nouz always reports margin on net revenue, so the number you see is the one your bank account agrees with.
TL;DR
The two definitions
Markup is what you add to cost to get to price, expressed as a percentage of cost. If something costs you €10 and you sell it at €15, you added €5 to the cost, which is 50% of the cost. Markup is the language of buyers and merchandisers — it answers "how much do I add."
Margin (specifically gross margin) is what you keep from the sale, expressed as a percentage of price. The same €10 → €15 sale leaves you €5 of the €15 you collected, which is 33%. Margin is the language of finance and reporting — it answers "how much do I keep."
Both are correct. Both describe the same sale. They are not interchangeable. A shop owner who quotes "50% margin" when they mean "50% markup" is overstating their real profitability by 17 percentage points on every product — and pricing as if that 17-point cushion exists.
The formulas
Markup % = (Price - Cost) / Cost
Margin % = (Price - Cost) / Price
Margin = Markup / (1 + Markup)
Markup = Margin / (1 - Margin)The conversion formulas matter because suppliers usually quote in markup and accountants always report in margin. Translating between the two without a calculator gets harder as the numbers grow — a 100% markup is a 50% margin, but a 200% markup is a 67% margin, and a 400% markup is an 80% margin. The gap widens fast.
Worked example
A boutique buys a jumper at €36 wholesale and sells it at €120.
| Step | Calculation | Result |
|---|---|---|
| Cost | — | €36,00 |
| Selling price (gross) | — | €120,00 |
| Gross profit per unit | 120 − 36 | €84,00 |
| Markup % | 84 / 36 | 233% |
| Margin % (on gross price) | 84 / 120 | 70% |
| Net price after VAT (19%) + 1,5% fee | 120 / 1,19 − fee | €99,27 |
| Gross profit on net price | 99,27 − 36 | €63,27 |
| Margin % (on net revenue) | 63,27 / 99,27 | 63,7% |
Three different numbers describe the same sale. The supplier conversation uses 233% markup. The shop's casual self-description is 70% margin. The honest financial reality — the number that lines up with the bank — is 63,7% margin computed on net revenue.
The "keystone" example: keystone markup means doubling cost to price. €10 cost → €20 price. That is 100% markup, 50% margin (on gross price), and roughly 41% margin on net revenue for a typical 19% VAT shop. Three numbers, one sale. Each correct in its own frame.
Conversion table
| Markup % | Equivalent margin % | Multiplier (price ÷ cost) |
|---|---|---|
| 25% | 20% | 1,25× |
| 50% | 33% | 1,50× |
| 67% | 40% | 1,67× |
| 100% (keystone) | 50% | 2,00× |
| 150% | 60% | 2,50× |
| 200% | 67% | 3,00× |
| 233% | 70% | 3,33× |
| 300% | 75% | 4,00× |
| 400% | 80% | 5,00× |
Print this table and stick it next to the till. The conversion is the part most owners cannot do in their head, and it is the part that matters most for pricing.
Why it matters
Confusing markup and margin breaks pricing decisions. An owner who thinks "I need a 50% margin" but applies a 50% markup ends up with a 33% margin and a 17-point shortfall. Across 200 units a year at €120 each that is roughly €4.080 of imagined profit that never showed up.
The mistake compounds because the margin you actually need is computed on net revenue, not gross. So the right workflow for a target margin is:
- Decide your target margin on net revenue (say 60%).
- Compute the required net price from cost: Net price = Cost ÷ (1 − Target margin) = €36 ÷ 0,40 = €90.
- Add card fee, then VAT, to get the gross display price: €90 / (1 − 0,015) × 1,19 = €108,73, rounded to €109.
- Cross-check: at €109 gross, your real margin on net is roughly 60%. Math closes.
A shop using markup math against gross price will price the same item at €72 (€36 × 2,00 keystone) and report a "50% margin" — when the real margin on net is roughly 41%. Across the assortment that gap is the difference between a profitable shop and one that wonders where the cash went. The retail markup formula walks through the full pricing workflow; the COGS snapshot explains why the cost side has to be a frozen value, not a live lookup.
Related concepts
- Retail markup formula — the workflow that turns target margin into display price.
- Gross vs net revenue — the denominator question that decides which margin number is real.
- COGS snapshot — why the cost in the markup/margin formula has to be a frozen snapshot, not a live cost.
- GMROI — the metric that combines margin with turnover for a fuller capital-efficiency view.
- Retail margin curve and restock — how margin behaves as a SKU moves through markdown stages.
FAQ
What is the difference between markup and margin in one sentence?
Markup is the gap between cost and price expressed as a percentage of cost; margin is the same gap expressed as a percentage of price. Same euros, different denominators, two different numbers. A €10 → €15 sale is a 50% markup and a 33% margin.
What is keystone markup?
Keystone markup means doubling the cost to set the price — a 2× multiplier, 100% markup, 50% margin (on gross price). It is the traditional default for many retail categories. Whether it actually delivers 50% margin in your bank depends on VAT, card fees and refunds — see gross vs net revenue for why the real number is usually 8-10 points lower.
Why do suppliers quote markup and accountants quote margin?
Suppliers think in terms of "what do you add to my wholesale price" — that is markup. Accountants think in terms of "what share of the sale do you keep" — that is margin. Both are correct for their context. The trouble starts when a shop owner reads a supplier sheet in markup terms and then reports the same number to themselves as margin.
Should I price using markup or margin?
Decide your target in margin (because margin is what your P&L actually shows), then convert to markup or to a price-multiplier for the buying conversation. Workflow: target margin → required cost-to-price ratio → display price including VAT and card fee. Pricing in markup directly risks systematically under-pricing if you confuse the two.