Markup and profit margin are related but different measures. Markup is the percentage added to cost to arrive at a selling price, while margin is the percentage of the selling price that is profit. Confusing the two is a common pricing mistake that can significantly affect profitability.

The formulas are: Markup % = (Selling Price - Cost) / Cost x 100 and Margin % = (Selling Price - Cost) / Selling Price x 100. Markup is always higher than margin for the same transaction because it uses the smaller cost figure as the denominator instead of the larger selling price.

For example, if a product costs $60 and sells for $100, the markup is 66.67% while the profit margin is 40%. The cost-to-price ratio of 0.60 means that 60 cents of every dollar goes to covering costs. Understanding this distinction is essential when setting prices, as a 50% markup only yields a 33.33% profit margin, not the 50% margin many business owners assume.