Margin vs. Markup Explained: Formulas & Key Differences

By Tracy NgMay 27, 20259 min read

If you’ve ever confused markup with margin, you’re not alone and if you run an eCommerce store, knowing the difference directly impacts your profit. Here’s the quick answer on what is margin vs markup:

Markup is how much you increase your product cost to set a selling price.
Margin is the percentage of revenue that turns into profit after covering the cost of goods.

In short: Markup starts from cost. Margin starts from price. Understanding both helps you price smarter, assess profitability more accurately, and avoid common pricing mistakes - especially when discounts, fees, and ad costs get involved. This article will walk you through the margin vs markup formula, how to calculate margin vs markup, and real-world examples tailored to Shopify and eCommerce.

Margin vs. Markup: What’s the Difference?

If you run an ecommerce business, understanding margin vs. markup is critical to setting profitable prices. While these two ecommerce metrics sound similar, these two measure profit in very different ways and mixing them up can hurt your bottom line. Let’s break it down by margin vs markup definition.

What Is Margin?

Margin (or profit margin) is the percentage of your selling price that is profit after covering the cost of goods sold (COGS). Understanding your margin is key to managing your overall profitability and cash flow.

For a deeper dive into tracking your store’s financial health, check out our comprehensive guide on profit and loss (P&L) statement.

Margin Formula:

Margin = (Selling Price – Cost) / Selling Price × 100

Margin Example:

Let’s say you sell a product for $50, and it costs you $30.

Margin = ($50 – $30) / $50 = 0.40 or 40%

That means 40% of your revenue is profit. This is a key metric for evaluating how much of your sales revenue is left after costs. To quickly calculate your margin, try this free profit margin calculator.

What Is Markup?

Markup shows how much you’ve increased your cost price to set your selling price. It’s calculated as a percentage based on cost, not revenue.

Markup Formula:

Markup = (Selling Price – Cost) / Cost × 100

Markup Example:

Same product: selling price is $50, cost is $30.

Markup = ($50 – $30) / $30 = 0.666 or 66.67%

In other words, you’ve marked up your product by 66.67% from its original cost.

Markup vs. Margin Explained

Even though they both describe profit, they use different reference points - leading to very different percentages. Here’s the key difference between margin and markup:

Metric

Based On

Formula

Example Result

Margin

Selling Price

(Selling Price – Cost) ÷ Selling Price × 100

40%

Markup

Cost

(Selling Price – Cost) ÷ Cost × 100

66.67%

When to Use Margin vs. Markup in Your Ecommerce Business

Knowing when to use margin and when to use markup is just as important as understanding the difference. Each metric serves a specific purpose in pricing, profitability analysis, and business decisions.

When to Use Margin

Use margin when you want to understand how much profit you keep from each sale relative to the selling price. This is essential for:

Evaluating overall profitability: Margin tells you what percentage of your revenue is profit after covering costs.
Setting profit goals: Retailers and brands often set target margins to ensure sustainable growth.
Assessing discount impacts: When running promotions or sales, tracking margin helps you see how reduced prices affect your profits.
Financial reporting: Margin is commonly used in income statements and key performance indicators (KPIs).

Example: If you sell a handbag for $100 with a $60 cost, a 40% margin means 40% of that $100 sale is profit.

When to Use Markup

Use markup when you’re focused on how much you increase your cost price to reach a selling price. It’s particularly useful for:

Pricing products: Markup helps you set prices that cover your costs plus desired profit.
Calculating wholesale prices: Wholesalers often use markup percentages based on cost to set their prices.
Budgeting costs: Markup clarifies the profit margin you’re building on top of your costs.
Comparing supplier offers: Understanding markup helps evaluate how supplier costs affect your pricing power.

Example: If your cost for a gadget is $40 and you want a 50% markup, you’d price it at $60 ($40 + 50% of $40).

Why Using Both Markup and Margin Matters?

Although most would say use margin to measure profit relative to sales revenue and for financial health checks and use markup when pricing products and calculating how much to add to your costs.

A smart ecommerce business owner will be calculating margin vs markup. First, determine the markup needed to hit your target margin and sales goals. Then track margin regularly to ensure your prices and promotions maintain profitability.

But manually calculating and tracking these figures can get complicated as your store grows. That’s where TrueProfit comes in.

TrueProfit's Dashboard

TrueProfit is a profit analytics solution that automates tracking by calculating real-time margins and markups at both product and order levels. Beyond just automated calculations, it provides actionable insights into your actual profitability - helping you make smarter pricing decisions and avoid costly mistakes with confidence.

Tracy Ng

Senior Content Executive at TrueProfit & SEO/Content Specialist

Tracy is a senior content executive at TrueProfit – specializing in helping eCommerce businesses scale profitably through content. She has over 4 years of experience in eCommerce and digital marketing editorial writing. She develops high-impact content that helps thousands of Shopify merchants make data-driven, profit-focused decisions.