Early in running Kind Loom and My Dabba, I used the words “markup” and “margin” as if they meant the same thing. A wholesaler would say “we work on 50%” and I’d nod along, not realising we might be talking about two completely different numbers. It’s one of those quiet mix-ups that doesn’t announce itself — it just slowly leaves money on the table. So let me untangle it properly, with examples you can actually use on your own products.

The one-sentence difference

Markup is a percentage of your cost. Margin is a percentage of your selling price. Same dollars of profit, two different denominators — which is exactly why they produce different percentages and why mixing them up is so easy.

The two formulas

• Markup % = (Price − Cost) ÷ Cost — how much you added on top of what you paid.
• Margin % = (Price − Cost) ÷ Price — how much of the selling price you keep.

Take a product that costs you $40 and sells for $60. The profit is $20 either way. But the markup is $20 ÷ $40 = 50%, while the margin is $20 ÷ $60 = 33%. Same product, same profit, two very different-sounding numbers. Neither is wrong — they answer different questions.

A conversion table

Because they’re linked, you can convert between them. Here’s the cheat sheet I keep handy:

• 15% markup = 13% margin
• 25% markup = 20% margin
• 50% markup = 33% margin
• 75% markup = 43% margin
• 100% markup (doubling) = 50% margin
• 150% markup = 60% margin
• 200% markup (tripling) = 67% margin

The takeaway jumps out: markup is always the bigger-looking number. “100% markup” sounds enormous but only gets you to a 50% margin. If a supplier or a course promises “200% markups,” that’s a 67% margin — good, but not the double-your-money mirage the phrasing implies.

Why confusing them quietly kills profit

Here’s the trap I fell into. Say you want to keep half of every sale — a 50% margin. If you mistakenly apply a 50% markup instead, you take a $40 cost, add 50%, and price at $60. But $60 with a $40 cost is only a 33% margin. You just under-priced by a wide gap and told yourself you were hitting your target. Do that across a whole catalogue and you’ve handed away a chunk of profit without ever seeing where it went.

The reverse happens too: someone benchmarks against a competitor’s “40% margin,” applies it as a markup, and over-prices themselves out of the market. Either way, the fix is the same — know which number you mean, and be consistent.

Which one to use when

• Use markup when you’re setting a price from a cost. It’s the natural way to think at the point of sale: “I paid this, I’ll add this much on top.” Retail and wholesale conversations are usually in markup.
• Use margin when you’re judging the health of the business. Gross margin is what shows up on your income statement and what tells you how much of every dollar of revenue is actually left to cover overheads and profit. When I compare Kind Loom to My Dabba, I compare margins, because they put both on the same footing regardless of cost.

My rule of thumb: I decide in margin (“I want to keep 55% of this sale”) and then price in a way that gets me there. If you want to price to a target margin, the formula is Price = Cost ÷ (1 − Margin) — I’ve got a full walkthrough with examples in my post on pricing for a 40/50/60% margin, and the free pricing calculator does the conversion for you so you never have to second-guess which number you’re holding.

One more thing: base it on the right cost

Whichever you use, the cost that goes into the formula has to be your true, all-in cost — not just the supplier invoice. For anything imported, that means your landed cost: product, freight, duty, import GST impact, brokerage, and the currency you actually paid. I learned this the hard way; my invoice cost and my real cost were a third apart. If you’re importing, work out that number first using the landed-cost guide, then apply your markup or check your margin. A perfectly-calculated 50% margin on the wrong cost is still the wrong price.

The quick recap

• Markup is measured against cost; margin is measured against price.
• Markup is always the larger percentage — 50% markup is only a 33% margin.
• Set prices in markup if that’s how you think, but judge the business in margin.
• Never apply a margin target as a markup, or you’ll under-price yourself.
• Whatever you do, start from your true landed cost, not the invoice.

Once this clicks, you stop nodding along to numbers and start knowing exactly what you’re keeping on every sale. That’s a small shift that pays for itself immediately.

This is based on my own experience — not financial, tax, or legal advice. Rules, rates, and fees change, so confirm current details with official sources like the CRA and CBSA before you decide.