Markup vs Margin: How to Price Your Product to Actually Profit

Two of the most confused words in small business are markup and margin. They sound like the same thing, but mixing them up is one of the most common reasons Filipino sellers underprice their products and wonder why walang natitira at the end of the month.

Markup: based on your cost

Markup is how much you add on top of your cost. If an item costs you ₱100 and you add a 50% markup, you sell it for ₱150. The markup is measured against what you paid — it answers the question, “how much did I add to my cost?”

Margin: based on your selling price

Margin is your profit expressed as a percentage of the selling price. On that same ₱150 item, your ₱50 profit is only 33% of the ₱150 price — so a 50% markup is actually just a 33% margin. Margin answers a different question: “of the money the customer paid me, how much did I keep?”

Why the difference matters

Here is where money quietly leaks. If you decide “I want a 50% margin” but compute it as a 50% markup, you will consistently price too low. Look at a milk tea that costs ₱25 to make:

That is a ₱12.50 gap on every single cup. Sell 40 cups a day and that is ₱500 of profit vanishing daily — roughly ₱15,000 a month — purely from confusing two words. Over a year, it is the difference between a business that grows and one that just breaks even.

Markup to margin, at a glance

A simple rule to price right

Decide the margin you need to cover rent, labor, and profit first — then work backward to the price. The formula is: Price = Cost ÷ (1 − desired margin). For a ₱25 cost and a target 50% margin, that is ₱25 ÷ 0.5 = ₱50. Do not just slap on a random markup and hope it is enough.

This matters even more when platform fees are involved. If you sell online, remember that fees eat into your margin too — see how Shopee and Lazada fees change your real profit before you lock in a price.

Frequently asked questions