Margin and markup: the same percentage can give two prices
“I want to make 25%” is incomplete until the base is clear: 25% of cost or of selling price? The wording changes only slightly, but the resulting price can change materially.
The numerator is the same; the denominator changes
The price difference is selling price minus cost. Markup divides that difference by cost; margin divides it by selling price. The same sale can therefore have two different percentages that are both correct.
For markup m, price is cost × (1 + m ÷ 100). For margin g, price is cost ÷ (1 − g ÷ 100). Name the measure before using it in a quotation or agreement so both parties are working with the same denominator.
References: Business Queensland: mark-up calculator and formula · Business Queensland: break-even and profit, gross margin
Define cost before describing profit
Entering only the item’s purchase cost does not automatically deduct rent, marketing, wages or payment fees. Accounting guidance distinguishes gross profit from the result after operating expenses. Do not label every price-minus-cost difference as net profit.
Keep figures consistent: the same unit, the same tax basis and the same included costs. When the cost assumption changes, record it rather than comparing percentages built from different definitions as if they were equivalent.
References: Business Queensland: break-even and profit, gross margin
A small price discount can make a larger dent in the difference
A 10% discount on selling price does not necessarily reduce the price-minus-cost difference by only 10%; cost may remain unchanged. Recalculate both the difference and the margin after the discount instead of subtracting percentage points from the old margin.
Boundary values need meaning rather than invented numbers: zero cost makes markup undefined, and zero price makes margin undefined. With positive cost, a 100% margin cannot be achieved at a finite price under this formula.
A cost of 72 and a price of 96
The difference is 24. Margin is 24 ÷ 96 = 25%, while markup is 24 ÷ 72 ≈ 33.33%. A markup of only 25% would give a price of 90 and a margin of 20%, not 25%. These are hypothetical amounts in one consistent currency.
Discounting 96 by 10% gives 86.40. With cost still 72, the difference becomes 14.40 and margin about 16.67%. The difference falls from 24 to 14.40, a reduction of 40%. Evaluate a discount against that actual difference, not only its apparently small percentage of price.