Markup is calculated on your cost; margin is calculated on your selling price. They are two different numbers for the same sale: a 40% markup leaves you a 28.6% margin, not 40%. To convert one into the other: Margin = Markup ÷ (1 + Markup). Mixing them up means setting prices that do not cover your costs.
You put a 40% markup on your product and think you have a 40% margin. You don't. You have a 28.6% margin. And that difference between markup and margin — misunderstood — is what leads thousands of Argentine e-commerce stores to set prices that don't cover their real costs and to scale a business that loses money.
What is markup?
Markup is the percentage you add to a product's cost to get to the selling price. The base of the calculation is cost.
Markup = (Selling price − Cost) ÷ Cost × 100
Example: you buy at $10,000 and sell at $14,000. Your markup is 40%.
Markup helps you set prices quickly: "I put 50% on everything I buy." It's an operational pricing tool, not a financial measurement.
What is profit margin?
Profit margin measures what percentage of what came in is profit. The base of the calculation is the selling price.
Margin = (Selling price − Cost) ÷ Selling price × 100
Same example: ($14,000 − $10,000) ÷ $14,000 × 100 = 28.6% margin.
Margin is the metric you use to evaluate profitability. When you want to know whether your business makes money, the number that matters is margin — not markup.
The critical difference few people see
Same product. Same numbers. But markup says 40% and margin says 28.6%. They're two percentages that measure different things because they have different bases.
A 28.6% margin means that of every $100 that came into your till, $28.60 is gross profit before other costs. If you thought it was $40, you're overestimating your profitability by 40%. In a business with $5,000,000 in monthly sales, that's $570,000 a month of "phantom" profit that doesn't exist.
Quick conversion table: markup to margin
Save this:
- Markup 10% → Margin 9.1%
- Markup 20% → Margin 16.7%
- Markup 30% → Margin 23.1%
- Markup 40% → Margin 28.6%
- Markup 50% → Margin 33.3%
- Markup 67% → Margin 40%
- Markup 100% → Margin 50%
To convert markup to margin: Margin = Markup ÷ (1 + Markup)
To convert margin to markup: Markup = Margin ÷ (1 − Margin)
And here is the same thing applied to a product that costs you $10,000 ARS:
| Product cost | Markup applied | Selling price | Profit per unit | Real margin |
|---|---|---|---|---|
| $10,000 | 30% | $13,000 | $3,000 | 23.1% |
| $10,000 | 40% | $14,000 | $4,000 | 28.6% |
| $10,000 | 50% | $15,000 | $5,000 | 33.3% |
| $10,000 | 67% | $16,700 | $6,700 | 40.1% |
| $10,000 | 100% | $20,000 | $10,000 | 50.0% |
To have a positive net margin in Argentine e-commerce with every cost included, you generally need a gross margin of at least 40-50%. That implies a markup of 67-100%. Few people calculate it this way. Most work with a 30-40% markup and wonder why the month doesn't add up.
Why does this wreck your store in practice?
In e-commerce, gross margin (price − product cost) is never your real profit. On top of that number come all the variable costs:
- Mercado Pago fees: between 3% and 6.29% depending on payment method and installments
- Tiendanube or Shopify fee: between 0.7% and 2% of the sale
- Shipping costs: if you offer free shipping or partly subsidize it
- Advertising (Meta Ads, Google Ads): between 10% and 30% of sales depending on efficiency
- Returns: between 5% and 35% in categories like fashion or footwear
If you start with a 28.6% gross margin (40% markup) and subtract those variable costs, your real net margin might be 5%... or negative. The hidden costs of e-commerce are exactly that: the ones that didn't make it into the initial calculation and destroy the margin you thought you had.
How do you calculate the real contribution margin per product?
Gross margin is just the starting point. To know whether a product really makes a profit, you need the contribution margin: the profit left after every variable cost attributable to that sale.
Contribution margin = Selling price − Product cost − Variable costs (shipping + fees + advertising + returns)
Example with a product at $14,000, cost $10,000 (40% markup, 28.6% gross margin):
- Starting gross margin: $4,000
- − Mercado Pago fee (4.5%): −$630
- − Subsidized shipping cost: −$600
- − Tiendanube fee (1%): −$140
- − Allocated CAC: −$900
- Real contribution margin: $1,730 (12.4%)
If you thought a 40% markup = a 40% margin, you end up with 12.4% for real. To learn how to calculate this step by step, read how to calculate your e-commerce profit margin. And to know the number you need to hit to stop losing money, check out the break-even point in e-commerce.
What the stores that actually close the month in the black do
E-commerce owners who really know whether they're making or losing money don't use markup as a proxy for profitability. They work with contribution margin per SKU, with every cost included. They know exactly which products cover their fixed costs and which don't. And they make pricing decisions based on real margins, not on the markup they put on the import.
How does Escalafy show the real margin of your products?
Escalafy connects your Tiendanube or Shopify with all your costs — platform fees, logistics costs, Mercado Pago fees, ad spend — and shows the real contribution margin by product and by SKU, in real time, without Excel.
You don't have to calculate anything by hand. Escalafy shows you which products give you real profit and which are destroying your margin — before the month closes with numbers you don't understand. See how profitability by product in Escalafy works.
And if you want to see the impact of the hidden costs of e-commerce in Argentina you're not seeing in your Excel, that article breaks down everything that usually doesn't make it into the calculation.
Frequently asked questions about markup and margin in e-commerce
When do I use markup and when do I use margin?
You use markup when you set prices from cost: "I'll put 60% on this product." You use margin when you measure profitability: "this product leaves me 37.5% profit on the sale." For financial decisions and running the business, margin is the metric that matters. For day-to-day pricing, markup can be practical — as long as you know what margin it's equivalent to.
What happens if I use markup to set prices but measure profitability with margin?
Nothing, as long as you do the conversion right. The problem is when you use markup as if it were margin: "I have a 40% markup = 40% margin." That gives you a distorted picture of profitability and leads you to make decisions based on numbers that don't exist. Read about the hidden costs of e-commerce in Argentina to see how the real margin always ends up lower than what you initially calculate.
How much margin does my store need to be profitable?
It depends on your model, but in Argentine e-commerce with paid ads, platform fees and logistics costs, you need a gross margin of at least 45-55% for the net margin to be positive. Many work with 20-30% gross margins and wonder why it doesn't add up. The answer is always the same: the variable costs ate everything.
Is there a tool that calculates real margin automatically?
Yes. Escalafy connects your store and calculates the real margin by product including every variable cost — without you having to enter anything manually. Instead of an error-prone spreadsheet, you get the exact number in real time.
Markup is for setting prices. Margin is for knowing if you make money.
Confusing markup with margin isn't just a semantic mistake. It's what leads you to believe you have a profitable business when you're actually subsidizing sales. If you have a 40% markup and think you're making 40%, you're overestimating your profitability by more than 40%.
Calculate the real margin of every product, with every variable cost included. And if you want to see it in real time without building any Excel, Escalafy shows you your store's real profit instantly.
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