Margin definition
Profit margin measures profit as a percentage of revenue. If an order has $100 of revenue and $30 of profit, the margin is 30%. Margin answers: how much of each sales dollar remains as profit?
Markup definition
Markup measures profit as a percentage of cost. If an item costs $70 and sells for $100, the profit is $30 and the markup on cost is about 42.9%. Markup answers: how much did you add on top of cost?
Why they are different
The denominator changes. Margin uses revenue as the denominator. Markup uses cost as the denominator. Because cost is usually lower than revenue, markup percentages often look larger than margin percentages for the same order.
Simple example
| Metric | Example | Formula |
|---|---|---|
| Revenue | $100 | Customer-paid order amount |
| Total cost | $70 | Product, fees, shipping, returns, ads, and other costs |
| Profit | $30 | $100 - $70 |
| Margin | 30% | $30 / $100 |
| Markup | 42.9% | $30 / $70 |
Which one should sellers use?
Use margin when you want to understand profitability relative to revenue. Use markup when you want to set price from cost. In practice, sellers often use both: markup for pricing logic, margin for profit planning and ad decisions.
Common seller mistake
A seller may think a 50% markup means a 50% margin. It does not. If a product costs $20 and is marked up 50%, the price is $30 and profit is $10. Margin is $10 / $30, or about 33.3% before additional fees and costs.
Use the calculators
Use the Product Pricing and Markup Calculator to estimate prices from target margin, markup, or desired profit. Then use the Ecommerce Profit Margin Calculator to verify the full order economics.