Profit Margin vs. Markup: The Complete Business Guide

## The Fundamental Difference

Many new entrepreneurs and freelancers mistakenly treat **Profit Margin** and **Markup** as interchangeable terms. While both measure the profitability of a product or service, they calculate it against completely different baselines.

### Profit Margin Profit Margin measures the percentage of the **Selling Price (Revenue)** that represents pure profit: $$\text{Margin} = \frac{\text{Revenue} - \text{Cost}}{\text{Revenue}} \times 100$$

### Markup Markup measures the percentage added to the **Cost of Goods Sold (COGS)** to reach your selling price: $$\text{Markup} = \frac{\text{Revenue} - \text{Cost}}{\text{Cost}} \times 100$$

### Example Calculation If a service costs $50 to deliver and you charge $100: - **Profit** = $50 - **Markup** = $50 / $50 = **100%** - **Margin** = $50 / $100 = **50%**

Using a dedicated calculator eliminates pricing miscalculations and ensures healthy business cash flow.