Margin and markup both measure profit, but they use different denominators and produce different percentages from the same numbers. Confusing them is one of the most expensive mistakes in small business.
A business owner adds 50% to their costs and calls it a 50% margin. Their accountant tells them their margin is actually 33%. Both are right — they're measuring different things. Here's why this distinction matters and how to calculate each correctly.
The only difference is what you divide by: markup uses cost as the base; margin uses revenue (selling price) as the base.
You buy a product for £60 and sell it for £100. Profit = £40.
Same product, same numbers, wildly different percentages. This is why the industry you work in matters — retail typically talks in margins; manufacturing and trades often use markup.
Imagine a business owner who wants a 40% margin but accidentally applies a 40% markup instead:
On every £100 item sold, they lose £27 of intended profit. Scale that to thousands of transactions and it's a serious problem — one that has genuinely caused businesses to trade unprofitably while believing they were hitting their targets.
Use margin when talking to accountants, investors, or comparing against industry benchmarks. Gross margin and net margin are the standard measures in financial reporting.
Use markup when pricing products based on cost. It's simpler for day-to-day pricing decisions: "my cost is X, I need to add Y% to it."
The most important thing is consistency — never mix the two in the same conversation or spreadsheet without clearly labelling which one you mean.
There are actually multiple margin figures used in business:
A business might have a 60% gross margin but only a 5% net margin if overheads are very high. Both numbers tell you something important — neither alone tells the full story.