Margin and markup both measure the gap between what something costs you and what you sell it for, but they use different bases, so a 50% markup is not the same as a 50% margin. Confusing the two is one of the most common pricing mistakes freelancers and small businesses make. This guide explains both formulas with worked numbers so you price every job correctly.
What is the difference between profit margin and markup?
Profit margin is profit expressed as a percentage of the selling price, while markup is profit expressed as a percentage of your cost. With a cost of $50 and a selling price of $75, the profit is $25: that is a 50% markup (25 divided by 50) but only a 33.3% margin (25 divided by 75). Margin is what you keep from each sale; markup is what you add to your cost.
The base matters because it changes the percentage for the exact same deal. Markup divides by the smaller number (cost), so it always looks bigger than margin. That is why a job quoted with a “30% markup” leaves you less profit than you might assume if you were thinking in margins.
Profit margin: the formula
Margin answers the question: of every dollar a client pays me, how much do I keep after covering costs?
Margin = (Selling price − Cost) ÷ Selling price × 100
Use margin when you want to know how profitable your work actually is. A freelancer charging $75 for work that costs $50 to deliver keeps $25 of each $75 earned, a 33.3% margin. Investors, accountants, and lenders almost always talk in margins, so this is the number to use in plans and financial statements.
To price from a target margin, rearrange the formula: Price = Cost ÷ (1 − Margin). If a project costs you $500 to deliver and you want a 20% margin, price it at 500 ÷ 0.80 = $625. You can run the same calculation in seconds with LancerBill’s profit margin calculator.
Markup: the formula
Markup answers a different question: how much do I add on top of my costs?
Markup = (Selling price − Cost) ÷ Cost × 100
Markup is the workhorse of day-to-day quoting. If materials cost $200 and you mark them up 40%, you charge 200 × 1.40 = $280. Retailers, tradespeople, and agencies quoting subcontracted work tend to think in markups because it is simple to apply to a cost sheet. Our markup calculator does the arithmetic if you want to check your figures fast.
The catch is that markup tells you nothing about what share of revenue you keep. That same 40% markup on $200 of cost gives a $80 profit on a $280 price, which is a 28.6% margin, not 40%.
Worked example: the same job, two answers
Take a freelance brand designer subcontracting development. She pays a developer $1,200 for a client site and charges the client $1,800.
Step 1: profit. 1,800 − 1,200 = $600 profit.
Step 2: markup. 600 ÷ 1,200 × 100 = 50% markup.
Step 3: margin. 600 ÷ 1,800 × 100 = 33.3% margin.
Same $600, two very different percentages. If she told herself she was “making 50%” and budgeted that way, she would overstate her profit by half. When you check both numbers side by side, the gap is obvious.
How to convert between markup and margin
You can move between the two with two simple formulas:
Margin = Markup ÷ (1 + Markup) and Markup = Margin ÷ (1 − Margin) (using decimals, so 50% = 0.50).
| Markup | Equals margin | Margin | Equals markup |
|---|---|---|---|
| 10% | 9.1% | 10% | 11.1% |
| 25% | 20.0% | 20% | 25.0% |
| 50% | 33.3% | 30% | 42.9% |
| 100% | 50.0% | 50% | 100.0% |
A 100% markup (doubling your cost) is only a 50% margin. Markup can exceed 100% without anything strange happening; margin can never exceed 100% because profit cannot be bigger than the price itself.
Which should you use when pricing your work?
Use markup to build the quote: start from your costs and add a percentage to arrive at the price. Use margin to check the quote: divide the profit by the price to see what you actually keep. The safest habit is both, every time.
Example: a copywriter needs a 40% margin on a project with $400 of costs (research time, subcontractor, tools). Pricing with markup at 40% gives 400 × 1.40 = $560, but the margin is only 160 ÷ 560 = 28.6%. Pricing from margin gives 400 ÷ 0.60 = $667. The “easy” shortcut would have cost her $107 on one project. Getting your base numbers right starts with calculating your freelance hourly rate properly, then applying margin thinking on top.
Tip: State your price using the margin formula but present the quote in plain language. Clients never need to hear “I applied a 60% markup”; they need one clear price. The formulas are for your planning, not the invoice.
Common margin and markup mistakes to avoid
The most expensive mistake is adding a markup percentage when you needed a margin. A client contract promising “20% profit” almost always means 20% of the price, which is margin. Delivering 20% markup instead quietly shrinks your profit: on a $1,000 cost, margin pricing gives $1,250 while markup pricing gives $1,200. That $50 leak repeats on every job.
The second mistake is forgetting costs. Both formulas are only as honest as the cost figure you feed them. Subcontractor fees, software, payment processing, and your own time all count. A business pricing calculator helps you capture the full cost base before you apply any margin or markup.
Watch out: Discounts eat margin faster than you think. A 10% discount on a price built with a 30% markup does not leave you with a 20% gain. On a $100 cost marked up 30% to $130, a 10% discount drops the price to $117, leaving a 17-dollar profit, which is a 14.5% margin. Always re-check margin after discounting.
How margin and markup play out in real freelance quotes
Scenario 1: the web developer. A developer pays a designer $800 for page designs and wants a 40% margin on the package. Margin pricing gives 800 ÷ 0.60 = $1,333. If she had lazily added a 40% markup instead, the quote would be 800 × 1.40 = $1,120, and her real margin would be only 320 ÷ 1,120 = 28.6%. One wrong formula, $213 less profit on a single package.
Scenario 2: the consultant. A consultant with $300 of real costs per day (travel, tools, admin) charges $500 a day. His markup is 200 ÷ 300 = 66.7%, which sounds impressive. His margin is 200 ÷ 500 = 40%, which is the number his accountant would use. Both are correct; only the margin tells him what share of revenue he keeps.
Scenario 3: the agency reseller. An agency white-labels SEO work from a freelancer at $1,000 a month and resells it at $2,500. The agency’s markup is 1,500 ÷ 1,000 = 150%. Its margin is 1,500 ÷ 2,500 = 60%. When the agency reports profitability to its owner, margin is the figure that matters.
Notice the pattern: markup answers “how much did I add”, margin answers “how much did I keep”. When money decisions depend on the answer, margin is usually the one that matters.
A useful rule of thumb: if a number is going on a report, a tax return, or a pricing policy, use margin. If it is going on a scrap of paper while you build a quote, markup is fine.
Key takeaways
- Margin divides profit by the selling price; markup divides profit by the cost.
- The same profit is always a bigger percentage as markup than as margin.
- Price = Cost ÷ (1 − Margin) when you need to hit a margin target.
- To convert: Margin = Markup ÷ (1 + Markup); Markup = Margin ÷ (1 − Margin).
- Use markup to build quotes and margin to check them, then verify both before sending.
- Rates last reviewed: October 2026.
Frequently asked questions
Is a 50% markup the same as a 50% margin?
No. A 50% markup equals a 33.3% margin, because the base is different. To get a true 50% margin you need a 100% markup, meaning you double your cost. This is the single most common source of underpricing.
What is a good profit margin for a freelancer?
Freelancers typically aim for a gross margin of 50% or more on project work, since their costs are mostly time and they carry no inventory. Service businesses in general often land between 30% and 60% gross margin. Net margin after all overheads will be lower.
Do I use margin or markup on invoices?
Neither appears on the invoice. Margin and markup are your internal planning numbers; the client only sees the final price. Use markup to build the price from your costs, then check the margin before you send the quote.
Can markup be more than 100%?
Yes, and it is normal in many fields. A 200% markup means the price is three times the cost, which equals a 66.7% margin. Margin can never exceed 100% because your profit cannot be larger than the selling price.
How do discounts affect my margin?
Discounts cut straight from profit, so they hurt margin disproportionately. A 10% discount on a price with a 30% markup drops the margin to about 14.5%. Always recalculate your margin on the discounted price before agreeing to it.
This guide is for general information only and is not financial, tax or legal advice.