Margin and markup
Both measure the same profit, against different things. Margin is the profit as a share of the selling price; markup is the profit as a share of the cost. That is why a markup is always the bigger number.
Profit = price − cost Margin = profit ÷ price × 100 Markup = profit ÷ cost × 100 Price for a margin = cost ÷ (1 − margin) Price for a markup = cost × (1 + markup)
Worked examples
Something that costs 60 and sells for 100 makes 40.00 profit: a margin of 40% and a markup of 66.67%. To make a 40% margin on a cost of 60, charge 100.00; a 40% markup gives only 84.00, a margin of 28.57%.
| Margin | Same as a markup of |
|---|---|
| 10% | 11.11% |
| 20% | 25% |
| 25% | 33.33% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100% |
| 60% | 150% |
How to read the result
- Profit margin: of every sale, the share you keep before fixed costs. Gross margin when the cost is just what you buy or make.
- Markup: how much you added on top of the cost.
- Selling price: rounded to the penny, with the margin and markup worked out at that price.
Common mistakes
- Adding a percentage to the cost and calling it the margin: a 40% markup is only a 28.57% margin.
- Including VAT or sales tax in the price: work out margins on prices without tax.
- Expecting a 100% margin: a margin can’t reach 100%, because that would mean the cost was nothing.
How to use it
- Choose what you know: cost and price, cost and margin, or cost and markup.
- Type the cost of one item.
- Type the price, or the margin or markup you want.
Questions
What is the difference between margin and markup?
Margin is profit divided by the selling price; markup is profit divided by the cost. On a cost of 60 and a price of 100, the margin is 40% and the markup 66.67%.
How do I price for a 40% margin?
Divide the cost by 0.6 (that is, 1 − 0.40). A cost of 60 needs a price of 100.00.
Is a 50% markup a 50% margin?
No. A 50% markup is a 33.33% margin; a 50% margin needs a 100% markup.
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Elsewhere on Yuzool
- Invoice to quote and invoice at that price
- Discount calculator in Figure
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