Markup compares profit with cost. Margin compares profit with selling price. The percentages can look similar while producing very different prices.
A simple example
If a service costs $600 to deliver and you add a 40% markup, the price is $840. Gross profit is $240, which is only a 28.6% margin.
If you want a 40% gross margin, divide cost by one minus the target margin: $600 ÷ (1 - 0.40) = $1,000. Gross profit is $400.
Use the right formula
Markup: (Price - Cost) ÷ Cost
Margin: (Price - Cost) ÷ Price
Price for a target margin: Cost ÷ (1 - Target Margin)
Define cost correctly
Include all direct costs required to deliver the sale: labor, materials, subcontractors, fulfillment, shipping, and variable sales or payment fees. If costs are incomplete, the calculated margin will be overstated.
Apply margin thoughtfully
A target margin must still support overhead, capacity, risk, and profit. Review margin by service or product rather than relying only on an overall company average.