What is Markup?
Markup and margin sound similar and get used interchangeably by people who do not lose money on the difference. They are not the same number, and getting them confused is one of the most expensive bookkeeping errors in retail.
The formula
Markup = (Selling Price - Cost) ÷ Cost × 100
A $10 item sold for $15 has a $5 markup, which is 50% of the cost.
Markup vs margin
The same $10 item sold for $15 has a margin of 33%, not 50%, because margin is calculated against the selling price, not the cost.
- Markup = profit ÷ cost
- Margin = profit ÷ selling price
Both express the same dollar profit, just relative to different bases. Margin is always lower than markup for the same product. A 100% markup is a 50% margin. A 50% markup is a 33% margin.
Why it matters for e-commerce
Pricing rules need a consistent reference. If your supplier negotiation is in markup terms ("we want a 60% markup over wholesale") and your pricing rules are in margin terms ("never sell below 30% margin"), the floor you set will not be the floor you intended.
The category convention varies. Wholesale and supplier conversations usually run in markup. Internal P&L and pricing strategy usually run in margin. The mistake is mixing them, especially in spreadsheets where one column drives another.
Example: A merchant sets a repricing floor at "COGS + 40%." They mean a 40% margin. The system, configured for markup, applies a 40% markup, which is a 28.6% margin. Across thousands of SKUs, the merchant loses about 11 percentage points of margin for months before the discrepancy is caught in a quarterly review.