Markup vs margin in fashion wholesale: why 50% markup is not 50% margin

Markup and margin describe the same profit in two different ways, and mixing them up is one of the most common pricing errors in wholesale. This page gives both formulas, one worked example from landed cost to wholesale price to retail price, and a simple conversion.

Markup vs margin: the short version

Markup measures profit against cost. Margin measures profit against selling price. Because price is larger than cost, the margin percentage is always smaller than the markup percentage for the same sale.

The two formulas

• Markup % = (price - cost) / cost x 100
• Margin % = (price - cost) / price x 100

Price is whatever the seller charges. In wholesale, the brand sells at the wholesale price (WHS) and the retailer sells at the recommended retail price (RRP). Each side has its own cost and its own price, so each side has its own markup and margin.

Worked example (invented numbers)

These figures are made up to show the arithmetic. They are not market data. One style, in EUR.

Brand side: landed cost 40, wholesale price 80.

• Profit per unit = 80 - 40 = 40
• Markup on cost = 40 / 40 = 100%
• Margin on wholesale price = 40 / 80 = 50%

Retailer side: buys at 80, sells at an RRP of 160 (ignoring VAT to keep the arithmetic simple).

• Profit per unit = 160 - 80 = 80
• Markup on cost = 80 / 80 = 100%
• Margin on retail price = 80 / 160 = 50%

Doubling the price from wholesale to retail is called keystone pricing. It always gives a 100% markup and a 50% margin, which is why "keystone" is a common starting point in fashion retail.

Why 50% markup is not 50% margin

Take the same landed cost of 40 and apply a 50% markup: 40 x 1.5 = 60. Profit is 20. Margin = 20 / 60 = 33.3%.

If a brand wants a 50% margin and mistakenly applies a 50% markup, it prices at 60 instead of 80 and earns 20 per unit instead of 40. Across a full order, that difference is large.

How to convert between them

• Margin from markup: margin = markup / (1 + markup)
• Markup from margin: markup = margin / (1 - margin)
• Price from cost and target margin: price = cost / (1 - margin). For cost 40 and a target margin of 40%, price = 40 / 0.6 = 66.67.
• Price from cost and markup: price = cost x (1 + markup)

A quick check: the markup percentage is always bigger than the margin percentage, unless both are zero. If your margin comes out larger than your markup, one of the two has been calculated on the wrong base.

Wholesale context

Fashion brands usually move through several price points. Landed cost (unit cost plus freight, duty and other per-unit costs) is the base. A multiplier gives the wholesale price, and a second multiplier gives the retail price. Both sides of that chain deserve their own check:

1. Brand margin on wholesale price, so you can see what is left after production and landing costs.
2. Retailer margin on retail price, because a buyer will test whether your RRP leaves them a workable margin.
3. Keystone check, which flags any style where the RRP falls below twice the wholesale price.

A line sheet that shows WHS and RRP next to each other makes this conversation with a buyer much easier.

Common mistakes

• Using one word for both. Write "markup on cost" or "margin on price" so that nobody reads the wrong base.
• Applying a margin target as a markup. The price comes out too low.
• Forgetting landed cost. Freight and duty belong in cost before any percentage is applied.
• Mixing VAT into the price. Work with net prices for margin, then add VAT for the shelf price.

Check it in a spreadsheet

The Wholesale Line Sheet + Margin Calculator calculates landed cost, suggested wholesale and retail prices, brand margin on wholesale, brand markup on cost, retailer margin on retail and a keystone check for up to 30 styles. It includes an order form with minimum order checks and ships with labelled example data that you replace with your own figures. It is a planning aid and does not set prices for you.

It is a paid product and is also part of the Buying & Wholesale Kit. The formulas above work in any spreadsheet for free.

See the Wholesale Line Sheet + Margin Calculator Line Sheet template on Etsy

Frequently asked questions

What is the difference between markup and margin?

Markup is profit as a percentage of cost. Margin is profit as a percentage of selling price. The same sale gives two different percentages.

How do I convert markup to margin?

Margin = markup / (1 + markup). For example, a 50% markup (0.5) gives 0.5 / 1.5 = 33.3% margin.

What is keystone pricing?

Keystone means a retail price of twice the wholesale price. That is a 100% markup on the wholesale price and a 50% margin on the retail price.

Are the numbers in the example real?

No. They are invented to show the arithmetic and are not market data.