Profit Margin, Markup and Break-even Explained
Last reviewed: 8 October 2026
Margin, markup and break-even are related but answer different questions. Confusing them can produce prices that look profitable but do not cover the real cost of running a business.
Profit margin
Profit margin expresses profit as a percentage of selling price or revenue. If an item sells for £100 and relevant cost is £70, profit is £30 and margin is 30%.
Markup
Markup expresses profit relative to cost. In the same example, £30 profit divided by £70 cost gives a markup of about 42.9%. A 30% margin is therefore not the same as a 30% markup.
Contribution margin
Contribution is selling price minus variable cost. It is the amount each unit contributes toward fixed costs and then profit.
Break-even point
Break-even units equal fixed costs divided by contribution per unit. If fixed costs are £3,000 and contribution is £15, the simplified break-even point is 200 units.
Why cost classification matters
Variable costs should move with sales or production, while fixed costs remain broadly unchanged over the relevant range. Some real expenses are mixed or step-fixed, so judgment may be needed.
Use scenarios
Try a lower selling price, higher variable cost and higher fixed-cost case. This shows how sensitive the business is to pricing or cost changes.