Margin vs. Markup
These two numbers are calculated from the same inputs — price and cost — but they answer different questions, and confusing them leads to underpricing.
The definitions
Markup = (Price − Cost) / Cost Margin = (Price − Cost) / Price
Worked example
A service costs you $60 to deliver and you sell it for $100.
- Markup: ($100 − $60) / $60 = 66.7%
- Margin: ($100 − $60) / $100 = 40%
Same transaction, two different-looking numbers. A common and costly mistake is aiming for "40% profit" but applying it as a 40% markup instead of a 40% margin — that under-prices the job because markup and margin diverge more as the target percentage increases.
Why it matters for target-margin pricing
If you want a true 40% contribution margin and your cost is $60, the correct price is Cost / (1 − Margin) = $60 / 0.60 = $100 — not $60 × 1.40 = $84, which only yields a 28.6% margin.