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Profit margin and markup: why the percentages differ
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The same profit can produce two different percentages. Margin uses sales as its base; markup uses cost. Adding 40% to cost therefore does not create a 40% margin. Write the denominator before using a percentage in a quotation or spreadsheet.
What to check before deciding
Check whether the starting price includes tax and unit extras are already in cost. A discount lowers revenue without automatically lowering cost. The calculated target is before discount; test any continuing promotion against that price. To assess the entire business, also examine break-even and fixed costs.
Hypothetical example, in EUR
A EUR 60 cost and EUR 100 net sale leave EUR 40 gross profit. Margin is 40/100 = 40%; markup is 40/60 ≈ 66.67%. A 30% target margin requires 60/(1−0.30) ≈ EUR 85.71. A 30% markup requires 60×1.30 = EUR 78. Check which target you actually intend.
40 / 100 = 40 %; 40 / 60 ≈ 66.67 %
What can change the result?
Full cost, discount and quantity. Percentages depend on their denominator; a calculated price guarantees neither demand nor net profit.