What is markup definition and what is the difference between margin vs markup?

The basic rule of a successful business model is to sell a product or service for more than it costs to produce or provide it. The difference between the cost of a product or service and its sale price is called the markup (or markon). As a general guideline, markup must be set in such a way as to be able to produce a reasonable profit. The markup price can be calculated in your local currency or as a percentage of either cost or selling price.

In our calculator, the markup formula describes the ratio of the profit made to the cost paid. Profit is a difference between the revenue and the cost. For example, when you buy something for $80 and sell it for $100, your profit is $20. The ratio of profit ($20) to cost ($80) is 25%, so 25% is the markup.

Now that you know what the markup definition is, keep in mind that it is easy to confuse markup with profit margin. Profit margin is a ratio of profit to revenue as opposed to markup's ratio of profit to cost. The profit margin allows you to compare your profit to the sale price, not the purchase price. In our example, we would compare $20 to $100, so the profit margin equals 20%.