Margin vs Markup

Same profit, different denominator — and the difference is money you meant to earn and did not.

The two definitions

markup = (price - cost) / COST     "what I added on"
margin = (price - cost) / PRICE    "what I keep of revenue"

Because price is always bigger than cost, the margin percentage is always smaller than the markup percentage for the same job. They meet only at zero.

What it costs on one lawn

A job that costs you $17.71, priced at "35%":

$3.34 on one lawn. At 20 lawns a week over a 28-week season that is $1,869 — for a business where the difference between a good year and a bad one is often smaller than that.

Converting between them

markup = margin / (1 - margin)
margin = markup / (1 + markup)

  35% margin  -> 53.8% markup
  50% markup  -> 33.3% margin

For pricing, skip the conversion:
  price = cost / (1 - margin)

Why the mistake hides

Nothing looks broken when you get this wrong. The job is still profitable, the customer still pays, and the invoice still balances. The only symptom is that the margin your accounts report at year end is lower than the one you thought you were pricing at — by which point you have run a season on it.

The habit that prevents it is simple: if you are pricing, you are dividing. Any time you find yourself multiplying cost by 1-point-something, you have applied a markup, and you should check that is what you meant.

Common questions

Is one of them "right"?

Neither is wrong — they answer different questions. Markup is convenient when you have a cost and want a quick multiplier. Margin is what tells you whether the business is viable, because it measures profit against the money actually coming in.

The error is not choosing one; it is stating a number in one and calculating it in the other.

How do I convert between them?

From margin to markup: markup = margin / (1 - margin). A 35% margin is a 53.8% markup.

From markup to margin: margin = markup / (1 + markup). A 50% markup is a 33.3% margin.

The practical shortcut for pricing is to skip conversion entirely: price = cost / (1 - margin). Divide, do not multiply.

Why do so many people get this wrong?

Because "add 35%" is ambiguous in plain English and multiplication is the intuitive reading. Multiplying feels like adding something on; dividing does not feel like anything.

It is also self-concealing. The job still shows a profit, just a smaller one than intended, so nothing looks broken — the shortfall only shows up as a gap between the margin you planned and the margin your accounts report.

Related tools

• Margin vs Markup CalculatorConvert between the two, and see what the confusion costs you on every job.
• Lawn Mowing Price CalculatorWhat to charge for a lawn, worked from your own costs and your target profit margin.

Sources

• Standard definitions - margin = (price - cost) / price; markup = (price - cost) / cost. Both, their conversions, and every figure in this article are unit-tested in this site's suite.
• How to Price Lawn Mowing - where the $17.71 job cost in the example comes from