Markup vs. Margin: The Pricing Mistake That Costs Thousands

I watched a freelancer friend lose $12,000 in profit over a year because he confused markup with margin. He wanted a 30% profit margin on his services. He applied a 30% markup to his costs. These are not the same thing, and the difference compounds with every invoice. The formulas Markup is the percentage added to cost to get the selling price: Selling price = Cost * (1 + Markup%) Markup% = (Selling price - Cost) / Cost * 100 Margin is the percentage of the selling price that is profit: Selling price = Cost / (1 - Margin%) Margin% = (Selling price - Cost) / Selling price * 100 The distinction: markup is relative to cost, margin is relative to price. The math that trips people up A 30% markup on a $100 cost: Price = $100 * 1.30 = $130 Profit = $30 Actual margin = $30 / $130 = 23.1% A 30% margin on a $100 cost: Price = $100 / (1 - 0.30) = $142.86 Profit = $42.86 Actual markup = $42.86 / $100 = 42.9% The freelancer who wanted 30% margins but applied 30% markups was earning 23.1% margins i