Markup and margin are two ways of measuring profit. They are not the same thing, but they are closely related. If you sell products in your business, especially in manufacturing, it’s important to understand both.
Markup tells you how much more you charge than what something costs you.
Margin tells you how much profit you keep after paying your costs.
Even though they sound similar, they give you different views of your pricing and profit. Getting them confused can lead to poor pricing strategy and lower profits.
In manufacturing, knowing your numbers is key. If your prices are too low, you won’t make enough profit. If your prices are too high, customers may go elsewhere.
Understanding markup vs. margin helps you:
Set smart prices
Cover your cost of goods sold (COGS)
Track your profit margin
Make better deals with buyers
Plan for growth
For more help on setting smart prices, check out margin analysis in manufacturing.
Here’s the formula to calculate markup:
Markup = (Selling Price - Cost) / Cost × 100Let’s say a machine part costs you $100 to make. You sell it for $150.
Markup = ($150 - $100) / $100 × 100 = 50%You marked up the price by 50%. That means you charged 50% more than it cost you.
Now let’s look at the margin formula:
Margin = (Selling Price - Cost) / Selling Price × 100Margin = ($150 - $100) / $150 × 100 = 33.3%Your profit margin is 33.3%. This tells you how much of each dollar you keep after paying for the product.
Want to learn more about how margin impacts business health? Read about strategies for profit.
Many business owners mix up markup and margin because they both deal with profit. But they are used for different things:
Use markup when you’re setting prices.
Use margin when you’re checking profitability.
For manufacturers, using the wrong one could mean underpricing your products or overestimating your earnings.
| Use Case | Use Markup | Use Margin |
|---|---|---|
| Setting product prices | ✔️ | |
| Reviewing profits | ✔️ | |
| Talking to sales teams | ✔️ | ✔️ |
| Making business forecasts | ✔️ |
Need help with financial planning? Check out our guide to manufacturing financial forecasting.
Your bottom line is your profit. If you don’t understand markup and margin, you could:
Lose money on every sale
Overpay for supplies
Undersell your value
Fail to reach your growth goals
Learn how these numbers connect to your top line vs. bottom line.
Fix: Always use margin when checking how much profit you made.
Fix: Use accurate cost of goods sold numbers to set prices.
Fix: Products with high competition may need smaller markups. High-value items can handle more.
Need help breaking down your costs? Learn how to calculate labor and overhead cost.
Cost to make each part: $80
Markup: 50% → Selling Price = $120
Margin: (120 - 80) / 120 = 33.3%
Cost: $500
Selling Price: $800
Markup = (800 - 500) / 500 = 60%
Margin = (800 - 500) / 800 = 37.5%
Improving markup and margin means better profits and a stronger business. Here’s how to do it:
Reduce costs with better capacity and production planning
Control labor costs
Automate your accounting to spot problems early
Cut products that have low margins
Focus on your best-selling, most profitable items
Knowing the difference between markup and margin can help you price smarter, earn more profit, and avoid common business mistakes. These two numbers shape how you sell, how you grow, and how you succeed in manufacturing.
If you’re unsure which formula to use—or if your margins are too low—it may be time to talk to a finance expert. Accurate pricing helps your business stay competitive and profitable.
Expense reports might seem like a back-office chore, but they play a frontline role in financial health. If you're a manufacturing business looking to scale, stay lean, or attract investors, organized and detailed expense tracking is non-negotiable.