Markup measures profit against your cost. Margin measures profit against your selling price. A $10 item sold for $15 carries a 50 percent markup but only a 33 percent margin, and confusing the two is one of the most common ways small sellers underprice.
Why the two numbers differ
The formulas share a numerator and differ in the denominator, which is exactly why the confusion persists.
- Markup is profit divided by cost. On that $10 item with $5 of profit: 5 divided by 10, so 50 percent.
- Margin is profit divided by selling price. Same $5 of profit: 5 divided by 15, so 33 percent.
The gap widens as the numbers grow. A 100 percent markup gives a 50 percent margin. A 200 percent markup gives a 67 percent margin. Nobody carries that table in their head, which is why the Markup vs Margin Calculator works backwards from the margin you want and tells you the price to charge.
The mistake in practice
A maker decides they want a 40 percent margin. They take a $12 cost, add 40 percent, and price at $16.80. They have actually set a 40 percent markup, which is a 29 percent margin. Across a year that gap is the difference between a business that pays for itself and one that does not.
The correct calculation divides rather than multiplies: cost divided by one minus the margin. So $12 divided by 0.6 gives $20, not $16.80. That is a $3.20 gap on every single unit.
Which one should you price with?
Price with margin. Margin tells you what share of each sale you keep, and that is what pays your fixed costs, your platform fees and yourself. Markup is a useful shorthand when buying stock, but it is the wrong tool for setting a retail price.
This matters more on marketplaces than on your own store, because platform fees come out of the selling price, not out of your cost. A 15 percent Etsy or eBay fee eats directly into margin. If you are working in markup you will not see it coming. The Etsy and eBay calculators show the real number after fees.
A quick reference
- 20 percent margin needs a 25 percent markup
- 30 percent margin needs a 43 percent markup
- 40 percent margin needs a 67 percent markup
- 50 percent margin needs a 100 percent markup
- 60 percent margin needs a 150 percent markup
Where this bites hardest
Handmade sellers, because labour is already often missing from the cost figure. If the cost you are marking up does not include your own time, a margin error on top of it compounds into working for free. Start from the Handmade Pricing Calculator instead, which builds labour and overhead into the base before any margin is applied.