Mark-up is your profit as a percentage of what the item cost you. Margin is your profit as a percentage of the price you sell it for. Buy something for £40 and sell it for £60 and the profit is £20: that is a 50% mark-up but only a 33.3% margin, because the same £20 is measured against a bigger number.
Note: this is general information about pricing, not accounting or tax advice. Figures are illustrative estimates. If you are setting prices for a business, check VAT and costs with your accountant or the relevant GOV.UK guidance.
The two formulas side by side
Both measures start from the same profit figure, which is the selling price minus the cost. They differ only in the number you divide by.
- Profit = selling price − cost
- Mark-up = profit ÷ cost × 100
- Margin = profit ÷ selling price × 100
Using the £40 cost and £60 price: profit is £20, mark-up is 20 ÷ 40 = 50%, and margin is 20 ÷ 60 = 33.33%. The House of Calculator engine gives exactly those two figures for that input, and it also shows the VAT line, which we come to below.
Because the selling price is always larger than the cost when you make a profit, margin is always smaller than mark-up. Margin can never reach 100%, because that would mean the item cost nothing. Mark-up can go well above 100%: selling a £10 item for £35 is a 250% mark-up and a 71.4% margin.
Why people mix them up
Both words describe “how much I make”, and in conversation people use them loosely. A supplier says they work to “30%”, a shop owner hears “30% on top”, and the accountant reads it as a margin. The consequences are real:
- If you add 30% mark-up to a £100 cost, the price is £130 and your margin is 23.08%, not 30%.
- If you want a 30% margin on a £100 cost, the price has to be £142.86, which is a 42.86% mark-up.
The gap between the two is £12.86 on a £100 item. Spread across hundreds of sales, using the wrong one is an expensive habit, usually in the direction of underpricing. When someone quotes a percentage, always ask: percentage of cost, or percentage of selling price?
Converting between mark-up and margin
You can switch between the two with a short formula, using decimals (50% is 0.5):
- Margin from mark-up: margin = mark-up ÷ (1 + mark-up)
- Mark-up from margin: mark-up = margin ÷ (1 − margin)
Check with 50% mark-up: 0.5 ÷ 1.5 = 0.3333, so a 33.33% margin. Check the other way with a 33.33% margin: 0.3333 ÷ 0.6667 = 0.5, so a 50% mark-up. Here is a reference table you can come back to:
| Mark-up on cost | Equivalent margin on price |
|---|---|
| 10% | 9.09% |
| 20% | 16.67% |
| 25% | 20.00% |
| 30% | 23.08% |
| 40% | 28.57% |
| 50% | 33.33% |
| 60% | 37.50% |
| 75% | 42.86% |
| 100% | 50.00% |
| 150% | 60.00% |
| 200% | 66.67% |
The pattern is useful to remember: a 100% mark-up (doubling the cost) is a 50% margin, and a 25% mark-up is a 20% margin. For small percentages the two are close, but they diverge fast. At 10% they differ by less than a point, while at 100% they are 50 points apart.
Working out a price from your cost
The most common job is setting a selling price. There are two routes, depending on which target you hold.
Starting from a mark-up. Selling price = cost × (1 + mark-up). A £24 item with a 40% mark-up sells at £24 × 1.40 = £33.60. The profit is £9.60 and the margin is 28.57%. The calculator’s “cost and the mark-up % I want” mode returns those figures.
Starting from a margin. Selling price = cost ÷ (1 − margin). The same £24 item with a 40% margin sells at £24 ÷ 0.60 = £40.00. The profit is £16, which is a 66.67% mark-up. Notice the price is £6.40 higher than the 40% mark-up version, because a 40% margin is a more demanding target.
A good habit is to price from the margin you need, because margin is what is left of every pound of sales once the product is paid for. If your overheads, fees and wages take, say, 25p from each £1 of sales, a 40% margin leaves a 15p profit. A mark-up figure cannot be read against sales in that way. For the wider picture of fixed costs and the sales you need to cover them, see Break-even point and profit margin: how to work them out.
Adding VAT: the price on the shelf
If you are VAT-registered, the selling price used in margin and mark-up sums is normally the price before VAT, because VAT is collected for the government and is not your income. Using the VAT-inclusive price makes your margin look better than it is.
Take a £40 cost and a £60 price before VAT. VAT at 20% is £12.00, so the customer pays £72.00. Your profit is still £20 and your margin is still 33.33%. If you wrongly worked from £72, you would see £32 of profit and a 44.4% margin, which would be an illusion.
Going the other way, if you have a shelf price including VAT and want to know your real margin, take the VAT out first: divide by 1.2. A £29.99 product price in a shop is £24.99 before VAT, which is the figure you compare with cost. Some goods are zero-rated or reduced-rated, and some businesses are not registered, so check the rate that applies. VAT explained: adding and removing VAT covers how VAT is added and removed.
What a discount does to your margin
Discounts are where the difference between mark-up and margin hurts. Suppose you buy at £40 and sell at £60, a 50% mark-up and 33.3% margin, with £20 profit. Now offer 20% off:
| Before | After 20% off | |
|---|---|---|
| Selling price | £60.00 | £48.00 |
| Cost | £40.00 | £40.00 |
| Profit | £20.00 | £8.00 |
| Mark-up | 50.0% | 20.0% |
| Margin | 33.3% | 16.7% |
A 20% price cut reduced profit by 60%, from £20 to £8, because the cost did not move. The break-even discount is the whole margin: at 33.3% off, the price is £40 and the profit is nil. A rule of thumb is that the discount you can afford is always smaller than it looks, so work from the margin, not the headline price. Percentage change, increases and discounts explains why a percentage off and a percentage back on do not cancel out.
A worked example for a small retailer
Imagine a gift shop buys candles at £18.50 each and sells them at £29.99 before VAT.
- Profit per candle: £29.99 − £18.50 = £11.49.
- Mark-up: £11.49 ÷ £18.50 = 62.11%.
- Margin: £11.49 ÷ £29.99 = 38.31%.
- VAT at 20% on £29.99 is £6.00, so the shelf price is £35.99.
The shop owner wants a 45% margin instead. Price = £18.50 ÷ 0.55 = £33.64 before VAT, which is a £40.36 shelf price. That is an 81.8% mark-up. Seeing “81.8%” next to “45%” is a good reminder that they are not interchangeable. A competitor’s price may stop you charging £40.36, in which case the useful question becomes whether you can lower the cost, for example by buying in larger batches, rather than whether to accept a thinner margin.
Use the full cost, not just the invoice price
The cost in your formula should be the full cost of getting the item ready to sell, sometimes called the landed cost. A trader who buys a batch of 100 mugs at £3.20 each pays £320, but may also pay £45 for delivery and £15 for packaging. The real cost per mug is £380 ÷ 100 = £3.80. Pricing from £3.20 with a 50% mark-up gives £4.80 and looks like a £1.60 profit. Pricing from £3.80 gives £5.70 for the same mark-up. At £4.80 the real profit is only £1.00 and the margin is 20.8%, not the 33.3% you thought you were getting.
Breakages, returns and unsold stock matter too. If one mug in twenty breaks, you are paying for 100 mugs and selling 95, so the cost per mug sold is £380 ÷ 95 = £4.00. Building a small allowance for waste into the cost is an honest way to keep the margin real.
Blended margins across a product range
Most businesses sell several products at different margins, so the overall margin is a weighted average, not a simple average. Suppose you sell £1,000 of product A at a 50% margin and £3,000 of product B at a 20% margin. Profit is £500 plus £600, which is £1,100 on £4,000 of sales, an overall margin of 27.5%. A simple average of 50% and 20% would say 35%, which is wrong because most of your sales are at the lower margin. Mark-ups cannot be averaged this way at all, because they are measured against different cost bases. That is one more reason to track margin when you look at the business as a whole.
Common mistakes to avoid
- Treating them as the same number. A 40% mark-up is not a 40% margin. Always label which one you mean.
- Calculating margin on cost. Dividing profit by cost gives the mark-up, not the margin.
- Forgetting VAT. Use the price before VAT for both measures if you are registered.
- Ignoring other costs. Mark-up and margin on the product are gross figures. Postage, card fees, packaging, rent and wages come out of the margin before you reach real profit.
- Rounding too early. On small items, a few pence of rounding changes the percentage noticeably. Keep full figures until the end.
- Assuming a margin target fits every product. Fast sellers can work on thin margins, while slow or fragile ones need more.
Try the calculator
Enter a cost and a price, or a cost and the margin or mark-up you want, in the Mark-Up and Profit Margin Calculator to see the matching selling price, profit, VAT and both percentages at once.
Frequently asked questions
What is the difference between mark-up and margin?
Mark-up is profit divided by cost. Margin is profit divided by selling price. For a £40 cost and £60 price, the mark-up is 50% and the margin is 33.3%.
How do I convert a mark-up to a margin?
Divide the mark-up by one plus the mark-up. With decimals, 0.5 ÷ 1.5 = 0.333, so a 50% mark-up equals a 33.3% margin. The reverse is margin ÷ (1 − margin).
Is a 50% margin the same as a 50% mark-up?
No. A 50% margin equals a 100% mark-up, because the profit is half the price and therefore the same as the cost. A 50% mark-up equals only a 33.3% margin.
Should I use margin or mark-up to set prices?
Many businesses price from margin because it shows how much of each pound of sales is left after the product cost. Mark-up is easy to apply to a cost list. Either works if you are consistent and you know which one you are using.
Do I include VAT when calculating margin?
Normally not, if you are VAT-registered. Use the price before VAT, because the VAT collected is passed to HMRC. Check GOV.UK or ask your accountant if you are unsure how it applies to your sales.