Profit margin is your profit expressed as a share of the selling price, while markup is the same profit expressed as a share of the cost, so one euro of profit always produces two different percentages.
That sounds like a detail for accountants. It is not. Mix the two up once in a price list and every quote you send afterwards carries the mistake, quietly, for years.
The two formulas side by side
Both start from the same number: gross profit, which is selling price minus cost. The only difference is what you divide it by.
| Formula | Answers the question | |
|---|---|---|
| Gross profit | Selling price − Cost | How much money is left per sale? |
| Profit margin | Gross profit ÷ Selling price × 100 | What share of every euro I invoice do I keep? |
| Markup | Gross profit ÷ Cost × 100 | How much do I add on top of what I paid? |
Because the selling price is always larger than the cost (as long as you make a profit), the margin is always the smaller of the two percentages.
A worked example
A small office equipment supplier buys a monitor arm for €60 and sells it for €100.
| Calculation | Result | |
|---|---|---|
| Gross profit | €100 − €60 | €40 |
| Profit margin | €40 ÷ €100 | 40% |
| Markup | €40 ÷ €60 | 66.7% |
Same product, same €40. Say "we make 40% on it" and "we put 66.7% on it" and both statements are true. The trouble starts when someone says "40%" and the listener hears the other one.
The mistake that costs real money
Here is the classic version. The owner decides the business needs a 30% margin to cover rent, wages and a profit. The person maintaining the price list reads "30%" and adds 30% to the cost.
A product that costs €70 is then priced at €91. The gross profit is €21, and €21 ÷ €91 is a 23.1% margin, not 30%.
The correct price for a 30% margin is cost ÷ (1 − 0.30) = €70 ÷ 0.70 = €100.
Scale that up to a year. Suppose the business buys goods for €140,000 and sells all of them:
| Pricing rule | Revenue | Gross profit | Actual margin |
|---|---|---|---|
| 30% markup (the mistake) | €182,000 | €42,000 | 23.1% |
| 30% margin (the intention) | €200,000 | €60,000 | 30.0% |
The difference is €18,000 of gross profit in a year, and nobody made an error they could see. Every invoice was calculated correctly. The rule behind it was wrong.
Converting one into the other
You do not need to recalculate from scratch every time. The conversion is fixed:
- Margin = Markup ÷ (100 + Markup) × 100
- Markup = Margin ÷ (100 − Margin) × 100
| Markup | Equals margin |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 50% | 33.3% |
| 66.7% | 40.0% |
| 100% | 50.0% |
| 150% | 60.0% |
| 200% | 66.7% |
Two rows are worth remembering: a 50% markup is a 33.3% margin, and a 100% markup is a 50% margin. Doubling the cost does not mean you keep 100% of the price. It means you keep half.
If you would rather not do the arithmetic, the profit margin calculator takes a cost and a selling price and shows margin, markup and gross profit together. The markup calculator works the other way round: enter the cost and either the markup or the margin you want, and it gives you the selling price.
When to use which
Neither number is "right". They are tools for different jobs.
| Situation | Use | Why |
|---|---|---|
| Setting a price from a supplier invoice | Markup | You start from the cost you know |
| Checking whether prices cover your overheads | Margin | Overheads are paid out of revenue, so compare like with like |
| Talking to your accountant or bank | Margin | Profit and loss statements report gross margin |
| Comparing products with very different costs | Margin | It shows which one earns more per euro invoiced |
| Briefing the team on a pricing rule | Either, but say which | Most errors come from an unnamed percentage |
The practical rule: never write a bare percentage into a price list or a pricing policy. Write "30% margin" or "43% markup". It costs two words and removes the single most common pricing error in small businesses.
What margin is not
A few boundaries help keep the terms clean:
- Gross margin is not net profit. It only subtracts the cost of the goods or service itself. Rent, wages, software and insurance still have to come out of it.
- Markup is not a discount in reverse. Adding 25% and then taking 25% off does not bring you back to the start. €100 plus 25% is €125, and €125 minus 25% is €93.75.
- A high markup is not automatically a good price. A 200% markup on a product that sells twice a year earns less than a 25% markup on one that sells every day.
That last point matters most for discounts. A discount is taken from the selling price, but it comes entirely out of your margin, which is why a "small" 10% discount can cost far more profit than it looks. The follow-up piece on the real cost of a discount does that calculation in full.
Keep the price in one place
Most margin errors are not made once. They are copied. A price is worked out in a spreadsheet, typed into a quote, typed again into an invoice, and a year later nobody knows which version is current.
The fix is boring and effective: keep each product and service with its price in one catalogue, and build every quote and invoice from that catalogue instead of from memory. In CRM Business Hub, your products and services live in one list inside your KIMISUITE workspace, so the price your team quotes is the price you decided on, not the one someone remembered.
Decide whether you price by margin or by markup, write it down with the word attached, and let the catalogue carry it into every document. CRM Business Hub runs in your workspace, billed per workspace rather than per user. Cancel anytime · No minimum term · 14 days free.
