Markup vs Margin
Markup uses cost as base; margin uses selling price as base.
Hyperbolic Cost Mappings 🖖
Margin and markup are related by a non-linear inverse mapping function...
Same profit, two denominators 🖖
The profit in money is identical either way — what changes is the base you divide it by. Markup divides that profit by the cost (what you paid), while margin divides the same profit by the selling price (what you charged). Because the price is always larger than the cost, margin is always the smaller of the two percentages. So a "40% markup" and a "40% margin" describe two different prices — always ask which base is meant.
Keystone pricing hides a 2-to-1 ratio 🖖
Retailers have long used "keystone" pricing — simply doubling the wholesale cost. Doubling adds 100% of the cost, so it is a 100% markup, yet the very same price is only a 50% margin. A shopkeeper who "doubles their money" is really running a 50% margin, not 100%. That 2-to-1 gap is exactly why mixing up the terms wrecks budgets: quote a target margin as a markup and you silently under-price every item.
Example problems
- retail baseline - Retail example: markup is 50% while margin is 33.3%.
- high-value software - High-value software can show very large markup and margin.
- low-margin goods - Low-margin products require volume to generate strong total profit.
- luxury goods - luxury sample case