Markup is a percentage of cost. Margin is a percentage of selling price. The profit is the same amount in both, but the base under the percentage is different, so the numbers do not swap.
This page shows how to pick the base, with a worked example. It supports inventory and cost of sales, and the percentage-base explorer lets you test the calculation.
Why does this mix-up happen?
In class, most percentage questions use the original amount as the base. So when a question says “25%”, the habit is to take 25% of the selling price, or to divide by 0.75.
That habit is correct for margin. It is wrong when the word is markup.
The word in the question tells you the base. Underline it before you calculate.
A routine for choosing the base
- Underline the word: markup (base is cost) or margin (base is selling price).
- Write the base as 100%. Under markup, cost is 100%. Under margin, selling price is 100%.
- Write the other figure as a percentage of it. Markup 25%: selling price is 125% of cost. Margin 20%: cost is 80% of selling price.
- Calculate with a multiplier or divisor and check by working the percentage back.
Worked example
A shop buys an item for 80 and applies a 25% markup. Find the selling price and the margin.
Step 1. The word is markup, so cost (80) is 100%.
Step 2. Selling price is 125% of cost: 80 × 1.25 = 100.
Step 3. Profit is 100 − 80 = 20.
Step 4, margin. The base is now the selling price: 20 ÷ 100 = 20%.
Check: 25% of 80 is 20, and 20 ÷ 100 is 20%. The profit agrees.
Now a second case where the base comes from the sales figure. Sales were 6,000 and the markup was 50%. Find cost of sales and gross profit.
Sales are 150% of cost, so cost of sales = 6,000 ÷ 1.5 = 4,000. Gross profit = 6,000 − 4,000 = 2,000. Margin = 2,000 ÷ 6,000 = 33.3% (to 1 decimal place).
The mistake to watch for
Mistaken working: 6,000 × 50% = 3,000 is gross profit, so cost of sales = 3,000.
The student took 50% of the selling price, which treats 50% as a margin. The question gave markup, so the 50% sits on top of cost.
The correction is to ask “50% of what?” before you multiply. If the answer is cost, the sales figure is 150% of it and you divide by 1.5. The check is quick: cost of 3,000 plus 50% of cost is 4,500, not 6,000, so the mistaken answer fails its own test.
Check yourself
1. Cost is 160. Markup is 30%. Find the selling price.
Show answer
160 × 1.3 = 208.
2. Selling price is 450 and the margin is 40%. Find the cost.
Show answer
Cost is 60% of selling price: 450 × 0.6 = 270. Profit is 180, and 180 ÷ 450 = 40%.
3. An item costing 200 sells for 250. State the markup and the margin.
Show answer
Profit is 50. Markup: 50 ÷ 200 = 25%. Margin: 50 ÷ 250 = 20%.
Where this leads next
Use the same habit on cost of sales from a stock movement and in sole-trader statements. The double-entry and ledger trainer shows where these figures land in the ledgers.
If base choice still slips under time pressure, online one-to-one Accounting tuition is a place to rebuild the habit with a teacher watching your working.