Profit Margin vs Markup: The Pricing Difference That Changes Your Numbers
Margin and markup are often confused. This guide explains the difference and shows how each one changes pricing decisions.
Margin and markup are not the same
Markup compares profit with cost, while margin compares profit with selling price. Because the denominator is different, a 25% markup does not produce a 25% margin.
Why this matters for pricing
If a team sets prices using markup but evaluates performance using margin, it can unintentionally create a gap between the expected and actual profitability of a product.
Work from complete unit economics
Include the costs that genuinely change with the sale: product cost, fulfilment, marketplace fees, payment fees and other variable expenses. A clean calculation is only as good as the cost inputs behind it.
Use scenarios before changing price
Test how price changes affect gross profit per unit and the sales volume required to maintain total profit. A higher margin can still reduce total profit if volume falls too far.
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