Markup and margin are two concepts that are often confused. Although both terms relate to profit and pricing , they have different meanings and are reflected differently on the balance sheet. In this post, we’ll explore the differences between markup and margin, and discuss how having a clear understanding of them can help you make effective business decisions.
Markup is an indicator that reflects the iran telegram number database percentage of profit that must be added to the cost of the product to form the selling price. Markup is determined by the following formula:
Markup (%) = ((Selling price – Cost price) / Cost price) * 100
Let's look at an example. You bought a product for $50 and want to apply a 40% markup. Let's calculate the selling price:
Markup = ((Selling Price – $50) / $50) * 100
40% = ((Sale Price – $50) / $50)
It follows from this that:
Selling price – $50 = (40% * $50)
Selling price - $50 = $20
Selling price = $70
Thus, the selling price at a 40% markup on a product with a cost price of $50 will be $70.
What is margin?
Margin is the percentage of profit received by the enterprise in relation to the selling price, i.e. the indicator reflecting the share of profit from the selling price. The following formula is used to calculate the margin:
Margin (%) = ((Selling Price – Cost) / Cost) * 100
For clarity, let's look at the same example. You bought a product for $50 and sold it for $70. Let's determine the margin:
Margin = (($70 – $50) / $70) * 100
28.57% = (($70 – $50) / $70) * 100
So, with a selling price of $70 and a cost price of $50, the margin will be approximately 28.57%.