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  - authorship/original
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title: Markup vs. Margin
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---
# 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.

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

## Example

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

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

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.

## Converting Between Markup and Margin

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