---
title: Markup vs. Margin
tags:
  - status/complete
  - type/encyclopedia-entry
---
# Markup vs. Margin

**Markup** and **margin** describe the profit of a sold good or service in terms of its cost.

$$
\text{Profit} = \text{Sell Price} - \text{Cost}
$$

**Markup** describes an item's profit as a fraction of its cost to the merchant.

$$
\text{Markup} = \frac{\text{Profit}}{\text{Cost}}
$$

**Margin** describes an item's profit as a fraction of its **sell price**,
its cost to the customer.

$$
\text{Margin} = \frac{\text{Profit}}{\text{Sell Price}}
$$

$$
\begin{align}
\rm Margin &= \rm \frac{(Sell\ Price - Cost)}{Sell\ Price} \\
\rm Margin \times Sell\ Price &= \rm Sell\ Price - Cost \\
\rm Cost &= \rm -1 \times (Margin \times Sell\ Price - Sell\ Price) \\
\rm &= \rm -1 \times Margin \times Sell\ Price + Sell\ Price \\
\rm &= \rm Sell\ Price \times (1 - Margin)
\end{align}
$$

## Example

Suppose a product that
* costs $80 to produce
* is sold for $100

$$
\text{Profit} = \$100 - \$80 = \$20, \quad
\text{Markup} = \frac{(\$20)}{\$80} = 25\%, \quad
\text{Margin} = \frac{(\$20)}{\$100} = 20\%
$$

## Converting Between Markup and Margin

$$
\text{Margin} = \frac{\text{Markup}}{1 + \text{Markup}}, \quad
\text{Markup} = \frac{\text{Margin}}{1 - \text{Margin}}
$$

> [!warning]
> Contractors (and sellers of products and services in general)
> almost exclusively talk about profit in terms of margin.
> **Even if someone says "15% _markup_"**
> **they may still be talking about margin.**