Margin vs Markup

See Also:
Gross Profit Margin Analysis
Retail Markup
Chart of Accounts (COA)
Margin Percentage Calculation
Markup Percentage Calculation

Markup vs Margin Differences

Is there a difference between margin vs markup? Absolutely. More and more in today’s environment, these two terms are being used interchangeably to mean gross margin, but that misunderstanding may be the menace of the bottom line. Markup and profit are not the same! Also, the accounting for margin vs markup are different! A clear understanding and application of the two within a pricing model can have a drastic impact on the bottom line. Terminology speaking, markup percentage is the percentage difference between the actual cost and the selling price, while gross margin percentage is the percentage difference between the selling price and the profit.

So, who rules when seeking effective ways to optimize profitability?. Many mistakenly believe that if a product or service is marked up, say 25%, the result will be a 25% gross margin on the income statement. However, a 25% markup rate produces a gross margin percentage of only 20%.

(NOTE: Want the Pricing for Profit Inspection Guide? It walks you through a step-by-step process to maximizing your profits on each sale. Get it here!)

Markup vs Gross Margin: Which is Preferable?

Though markup is often used by operations or sales departments to set prices it often overstates the profitability of the transaction. Mathematically markup is always a larger number when compared to the gross margin. Consequently, non-financial individuals think they are obtaining a larger profit than is often the case. By calculating sales prices in gross margin terms they can compare the profitability of that transaction to the economics of the financial statements.

(Try the calculators at the bottom of the page to discover for yourself which is better!)

Steps to Minimize Markup vs Margin Mistakes

Terminology and calculations aside, it is very important to remember that there are more factors that affect the selling price than merely cost. What the market will bear, or what the customer is willing to pay, will ultimately impact the selling price. The key is to find the price that optimizes profits while maintaining a competitive advantage. Below are steps you can take to avoid confusion when working with markup rates vs margin rates:

Still deciding whether to use margin or markup to establish a price? Easily discover if your company has a pricing problem and fix it with either margin or markup. Download the free Pricing for Profit Inspection Guide to learn how to price profitably.

margin vs markup

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margin vs markup

Margin vs Markup Chart

15% Markup = 13.0% Gross Profit
20% Markup = 16.7% Gross Profit
25% Markup = 20.0% Gross Profit
30% Markup = 23.0% Gross Profit
33.3% Markup = 25.0% Gross Profit
40% Markup = 28.6% Gross Profit
43% Markup = 30.0% Gross Profit
50% Markup = 33.0% Gross Profit
75% Markup = 42.9% Gross Profit
100% Markup = 50.0% Gross Profit

Margin Calculator

Markup Calculator

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77 Responses to Margin vs Markup

  1. Robert west January 21, 2014 at 5:28 am #

    My view is that a margin is always expressed as a percentage and profit is always expressed in dollars. So the article appears to add additional confusion when it discusses gross margins as percentages, but then uses a table to ascribe a percentage as a gross profit.

    • Steve September 18, 2014 at 10:32 am #

      Robert, you are incorrect in your “view”. Margin and profit are both expressed as percentages and dollars.

      I would suggest you take some accounting and business management courses somewhere.

      • John September 23, 2014 at 12:24 pm #

        Steve,

        I would suggest you take some “tact” classes somehwere.

        • Seth January 2, 2015 at 3:10 pm #

          Seriously. Geez.

        • John C April 10, 2015 at 5:11 pm #

          Lol, yea just glad your not working with Steve

          • Tim June 9, 2015 at 11:14 pm #

            Disagree. Steve is entirely correct. Not every correction needs to be sugar coated in the real world.

      • Abu September 17, 2017 at 11:53 am #

        Can anyone tell me if markup is 1.10 what will be the gross profit and how it will be calculated please mail me on this I.d abubakrsiddiqui000@gmail.com

      • Jesse July 9, 2018 at 4:39 pm #

        In order to fully understand this concept what would be better to tak accounting or business management??

    • Juan Villar December 11, 2014 at 7:19 am #

      Gross Profit is always expressed in dollars. The figures above should read “gross margin,” not gross profit.

    • Kevin January 10, 2016 at 11:53 am #

      As a business owner who has no financial backround but has a basic understanding of P&Ls and balance sheets, find this article helpful in understanding the difference in Markup versus Margin.

  2. Paris June 10, 2014 at 9:16 am #

    How do you calculate margin when only the selling price and the mark-up are known.

    • Olivia Durr June 13, 2014 at 10:05 am #

      Paris, if you know the selling price and the mark-up, what pieces of the mark-up equation do we have so far? Let’s see…

      Selling price = Cost of Good x (1.00 + Markup Percentage)

      So this means that if we “mark-up” a product 25%, we are multiplying the cost of the product (good) by 1.25. This will equal the selling price.

      Therefore, if we only have the selling price and the 25% markup, we know that we can divide the selling price by 1.25. This will give us the cost of the product (good).

      Once we know this, we can subtract the selling price minus the cost of the product (good). This number is the margin. Divide it by the selling price, and it will give you the gross margin percentage. Using the example markup of 25% from above, if we pretend that the selling price is $50.00, then this would be the steps:

      (1) Divide $50.00 by 1.25 (25% markup) = $40.00 = cost of product (good)
      (2) Subtract $50.00 minus $40.00 = $10.00 <-- Margin (3) Divide $10.00 margin by $50.00 selling price = 20% gross margin Notice how at the bottom of this post, the Margin vs. Markup chart shows that a 25% markup will equate to a 20% margin. Let me know if this helps, Paris!

      • rob w August 24, 2015 at 11:53 am #

        Ms. Olivia Durr,

        That is perfect explanation – thanks so much !
        Smart and good looking….
        Anyway – thank you for your simple explanation.

        Kind Regards,
        Rob

        • Rick Parsley December 23, 2015 at 6:24 pm #

          Here is the more common question, If I know the cost and the profit margin I want how do I calculate the sell price? I was taught
          cost divided by(1.00 minus margin = sell price.

          Example cost $67 margin% 20%
          67/.8 =$83.75 sell price
          .Does everyone agree?

      • Amy February 5, 2016 at 4:32 pm #

        Olivia, You are the Queen! Best explanation ever!! Thank you so so much!! Best interpretation by FAR!!

      • Viresh M. Govekar April 18, 2016 at 5:18 am #

        Simplest & intellectual form, to explain.

      • Muhammad Ahmed Shah June 5, 2016 at 5:36 am #

        Very well explained. Thanks

  3. Andrew September 8, 2014 at 5:37 pm #

    Olivia,

    The profit is ten dollars on that specific sale. That is the important information right, bottom line profit. What is the benefit in looking at profit in margin format rather than markup format? if your margin on items change ( some are 20% 16% etc. etc.) you can’t easily extrapolate the profit from the margin numbers any easier than the markup numbers can you?

    • Olivia Durr September 10, 2014 at 12:43 pm #

      Andrew,

      To answer your first question of “what is the benefit in looking at profit in margin format rather than markup format,” the reason lies in your financial statements. On your income statement, you find the gross margin exists when you subtract direct costs from revenue. If you look at your income statement with everything as a percent of sales, then this line is the gross profit percentage. The takeaway you achieve from knowing the gross profit percentage is this — You gross profit percentage represents the amount of money the business keeps to go towards fixed costs for every dollar of sales. It’s very important that everyone in the company knows that number. For example, knowing that your business needs a gross profit percentage of 30%, sales people can be trained to only make sales in which the sales minus the direct costs equals a value that is 30% of the sale. Using the gross profit rather than the markup means that everyone in the company is speaking the same language, from accounting to sales, and the numbers reflect the income statement. If the income statement is a part of daily conversation at the company, and everyone is focused on making the right numbers, then EBITDA (profitability) will improve. The issue is that oftentimes people in a business think that they are referring to the same number when saying “markup” or “margin.” However, as evidence from the numbers in this article, those values are very different.

      For your second question, I’m afraid I don’t understand. When you refer to the margin changing, what exact numbers are you referring to? To calculate operating profit (EBITDA), which is revenue minus direct costs minus indirect costs, you cannot use a markup value to get there. With the choice of markup or margin, you’d have to use your gross profit margin number to get calculate EBITDA. Can you form that question differently so I can give you a better answer?

      Thanks!
      Olivia

      • Rich April 9, 2015 at 3:50 pm #

        Good explanation Olivia. However, I am wondering if it would be possible to have a set markup in the scenario you describe, or does it only work out using margin? Thanks in advance.

      • Jordan May 29, 2015 at 8:42 am #

        Lol you guys are too funny. None of you got the answer correctly well I would say Oliver had it nearly right, but not really so here is the correct answer for those who really want to know what’s the different between Margin and Mark-up price is ok

        1. read this out laud 1+1= 2 ABCD EFG HIJK LMNOP QRS TUV WXYX
        2. Divide $50.00 by 1.25 (25% markup) = $40.00 = cost of product (good)
        Subtract $50.00 minus $40.00 = $10.00 <– Margin
        Divide $10.00 margin by $50.00 selling price = 20% gross margin

        Notice how at the bottom of this post, the Margin vs. Markup chart shows that a 25% markup will equate to a 20% margin.

        Let me know if this helps, everyone 🙂

        • Carmen November 17, 2015 at 5:15 pm #

          I like to do it in one step.

          Say you would like to make 30 points of Gross Margin on something that costs you $100.(I like to refer margin in points, as it helps separate the thought between it and mark-up percent)

          Divide $100(cost) by 0.70 = $142.86 – $100(cost) = $42.86 gross margin dollars.

          Here is some round examples to what I mean:

          10 Points Margin – Divide Cost by 0.90
          20 Points Margin – Divide Cost by 0.80
          30 Points Margin – Divide Cost by 0.70
          40 Points Margin – Divide Cost by 0.60
          50 Points Margin – Divide Cost by 0.50
          60 Points Margin – Divide Cost by 0.40
          70 Points Margin – Divide Cost by 0.30
          80 Points Margin – Divide Cost by 0.20

          It is a little easier to see the pattern with these listed. Just for a second, assume the points listed are a fraction of 1. So, 10 points would be 0.10. If you subtract this number from 1, you are left with number you must divide your cost by. 1.00 – 0.10 = 0.90

          This will work for any weird and wonderful margins you are looking to capture.

          i.e. Say you want to make 47.5 Margin Points on your sale. Goods cost $200. So going through my steps:

          1 – 0.475(47.5 Points) = 0.525

          $200/0.525 = $380.95 – $200(cost) = $180.95 Gross Margin Dollars

          Hope this helps someone along the way.

          I had a question also; For sales requiring freight, just curious if anyone else adds their freight into their cost of goods, then applies their margin?
          As long as it is not an extreme freight scenario, I find this a solid way to cushion one’s freight costs and increase gross marginal dollars in the case that some unforeseen cost should arise.

          Cheers all,
          Carm

      • Eddie May 24, 2018 at 4:58 pm #

        Before I ran my families Home Building business one of the three sales/construction companies hired a person to run and manage it. Well, this person used the markup method of pricing and ended that year $350k in the hole. 25% markup up while having a 23% overhead – do the math.

        Buggy site trying to try on my iPhone.

    • Syed Faisal Ali April 12, 2016 at 8:01 am #

      You made it easy to understand. Thumbs Up!

      Thank you so much !

  4. Kamlesh September 21, 2014 at 11:24 pm #

    I am surprised that people dont even know how to use mark up properly. This whole article has a fundamental flaw .
    If cost is 100 and you want to mark up 25% then the selling price is not 125 its 133.33.
    Thats how you calculate mark up.
    Ill also give an example which you can apply in practise.
    Suppose you want to give a discount of 25% on your selling price.
    125×25%= 31.25 . So 125- 31.25= 93.75, which is below your cost.
    Whereas if you mark up 25% correctly ,which is 133.33. Then 133.33 x25% = 33.33. So 133.33 -33.33 = 100 .
    Which is the cost of your product and you recover cost and not make a loss, whereas if you calculate markup incorrectly youre thinking i added 25% and i gave that as discount so i recovered my cost.

    • Jeff October 21, 2014 at 12:08 pm #

      I’ll assume you didn’t read the article. If you have an $8 product you sell for $10 the markup is $2. The markup % is based off of the purchase cost of $8 and is 25%.

      Looking at margins is more of what you described and is generally what I am more concerned with during day to day pricing. The example above would have a 20% margin as $2 is 1/5 of the final sales price. This is what gives someone room to offer discounts like you had mentioned…a 25% discount would mean you are losing money

    • John October 24, 2014 at 1:20 pm #

      Kamlesh,

      You thinking makes sinces, but your saying that a 25% mark up becomes equal to a 25% gross profit margin.

      (133.33-100)/133.33 = 25% gross margin, where margin is equal to 33.33.

      To apply a 25% discount you first, 1-.25=.75, then 100/.75=133.33. Then your markup becomes 33.33% by 1-(133.33/100)

      25% markup equals to 33.33% gross margin.

    • anna August 22, 2016 at 8:28 am #

      Hardap Dam Business Enterprise has a rate of turnover of 7 times. Average inventory is N$12 600. Trade Discounts (margin allowed) is 331/3 % of all selling prices. Expenses are 662/3 percent of gross profit.
      You are to calculate:
      a.) Gross profit margin.
      b.) Cost of goods sold
      c.) Turnover.
      d.) Total expenses.
      e.) Net Profit.

  5. Nare October 21, 2014 at 7:30 pm #

    If you are only given a markup and you are required to calculate a margin. Lets say you are given markup of 66.6% and what’s going to be your margin??

  6. John October 24, 2014 at 1:33 pm #

    33.33% markup equals to 25% gross margin.

  7. Scott November 18, 2014 at 9:02 am #

    Here are the simple equations

    Price = (1+ Markup %) * Cost
    Price = Cost/(1-Margin %)
    Margin = Markup % / (1 + Markup %)

    A 33% Markup yields a 25% Margin.
    A 50% Markup yields a 33% Margin.

    • abiola June 22, 2016 at 10:50 am #

      what is
      33 1/3% to margin

    • ADNAN ZEB May 25, 2017 at 11:31 am #

      scott,

      By using your formula e.g if the cost of product is 10 dollar and markup is 20 percent like (1+ .20)* 10=12 selling price.while using your second formula like 10/.80= 12.5 so both the answers is different from each other.

  8. George November 20, 2014 at 8:41 pm #

    I can’t believe how complicated everyone is making this, it’s really not this difficult. First, let’s define 4 important things:

    (1) Income – cost of goods = gross profit margin. This is what you would see on an income statement BEFORE you started looking at expenses.

    (2) Markup is the sales price of an item compared to it’s cost (either to buy it or produce it). In other words, markup is figured as a percentage of the seller’s costs. As a percentage it is (Sales Price/Cost)-1 = Markup percentage.

    (3) Margin is the gross profit on the selling price. As a percentage it is Gross Profit/Income = Margin percentage.

    (4) Fixed costs are difficult to change; i.e, rent. Variable costs are easier to control; i.e, buy the same item at a lesser cost from a different manufacturer.

    So, why is it important to know the difference?

    -Markup helps you determine the proper sales price taking into account the costs to purchase or produce the item. This will ensure you sell the item for more then it costs to make it. (i know, obvious).

    -Margin helps you determine your profitability.

    Here’s a great example:

    You purchased an item for $10, you mark it up by 50%, sales price will be $15. Your income statement will show income of $15 with a cost of goods sold of $10, your gross profit will be $5, a gross profit margin of 33%.

    A generic income statement, from top to bottom, is;

    Income
    – Costs of Goods
    = Gross Profit Margin
    – Expenses
    = EBITDA
    -Interest
    -Taxes
    -Depreciation
    -Amortization
    =Net Profit

    If your expenses run 50% of Income, then a 33% margin isn’t enough to make money. So, you need to purchase or produce the item for less or you need to cut costs somewhere else. Of course, you could increase the price.

    This is a simple example but I think it gives you everything you need to understand the importance of markup vs margin.

    • Barry November 17, 2015 at 6:33 am #

      ^^^^^^
      The clearest answer you’ll find on here – thanks George!

      • Naseem April 7, 2017 at 2:43 am #

        finally. scrolling down all those comments. someone explains to me the importance of Markup in my income statement… thanks George.

    • BJ October 13, 2016 at 6:58 am #

      What a wonderful explanation! Thanks Bro.

  9. Lee December 15, 2014 at 8:18 pm #

    All,

    A useful formula if you want to know what price to charge to earn a desired margin.

    Price = Cost / (1 – margin%).

    I’ve found demonstrating this to sales people (anyone in fact) easily clarifies any confusion around margin and markup.

    Lee

  10. RIchard January 8, 2015 at 10:02 am #

    Mark-up % = Sales – Cost
    —————-
    Cost

    GM % = Sales – Cost
    —————–
    Sales

    The markup % is usually higher because your cost is usually lower than your sales. Nuff said.

  11. anuja March 15, 2015 at 5:26 am #

    total sales are 5,00,000rs,20%profit on cost, total profit would be?

  12. Gi May 18, 2015 at 1:36 am #

    We’re a distributor of fmcg goods. We’ve different mark up % for different items. Our supplier now wants us to standardise the % or mark up for all items. How do I calculate the effect this will have on my business?

  13. Jordan May 29, 2015 at 8:41 am #

    Lol you guys are too funny. None of you got the answer correctly well I would say Oliver had it nearly right, but not really so here is the correct answer for those who really want to know what’s the different between Margin and Mark-up price is ok

    1. read this out laud 1+1= 2 ABCD EFG HIJK LMNOP QRS TUV WXYX
    2. Divide $50.00 by 1.25 (25% markup) = $40.00 = cost of product (good)
    Subtract $50.00 minus $40.00 = $10.00 <– Margin
    Divide $10.00 margin by $50.00 selling price = 20% gross margin

    Notice how at the bottom of this post, the Margin vs. Markup chart shows that a 25% markup will equate to a 20% margin.

    Let me know if this helps, everyone 🙂

  14. moucon July 9, 2015 at 6:35 pm #

    Everyone is over-complicating this issue.

    Gross profit is the difference between the selling price and the cost of goods sold.
    If you sell something for $125 and the cost was $100, that is a gross profit of $25

    “Mark-Up” is always expressed “From COST”. That $25 is (at the same time) a 25% MARK-UP from COST>

    “Gross Margin” (or Gross Profit Margin) is always expressed as a % of the SELLING PRICE.

    That $25 , a 25% mark-up of the $100 COST… yields a selling price of $125, which is a Gross Profit Margin of 20% . 25/125 = 20%

    Likewise, if you had the same cost – $100, and marked it up 50%, you would yeild a gross profit (in dollars) of $50, a Selling Price of $150, and a Gross Profit Margin (%) of 33.3333% (one third), expressed as 50/150 – 1/3 or 33.33%

    We express gross profit as both a percentage (GP%) and a dollar value (GP$)

    Same $100 cost…. if you marked it up 15% ($15) – you would generate a selling price of $115… and the gross profit margin would be 15/115 or roughly 13%

    Same $100 cost – if you marked it up 45%, you would generate a selling price of $145, a gross profit margin of $45 or 45/145, which is around 31%

    That honestly, is all there is to it. No more complicated than that.
    JLS

  15. Neal July 22, 2015 at 1:11 pm #

    You are all messed up.
    And nerds.
    Go outside and get some fresh air.

  16. Donnie October 24, 2015 at 10:46 am #

    The bottom line is what the buyer is willing to pay and boils down to buyers’ perception of the final price in regards to the overall cost of doing business and what factors most to his buying decision. If an item is $1.00 above cost but delivery is SAY ” when it gets here at an undetermined future date” may mean that he negotiated a good price but may never receive the order.
    Price, Quality, Delivery,: pick 2, you probably want get all 3.

  17. Shaun October 28, 2015 at 3:58 pm #

    I came here searching for a simple explanation of why Margin is more important over markup….I’m leaving here being glad I’m not an accountant, in more ways than one!….but I managed to decipher this…
    if you add %25 markup when setting a sell price….and the culture of the sales people is to discount %25….then you lose money as discounting by % is Margin.
    also…changing your sales from Markup to Margin is a handy conversion so it relates better to your financial records. Therefore if you want your financial figures to grow you need to be working more with Margin figures.
    I don’t need to know the ins and outs of accountancy laws etc…just the basics will do.

  18. Sarah November 19, 2015 at 6:45 pm #

    Moucon…. THANK YOU!!! Best answer in the simplest way!

    Finally someone who could explain the difference. I knew how to calculate them but didn’t understand when each would be used!!! Margin is the pre maiming percentage after taking away the cost price. The mark up is the percentage you are adding on to the cost price!

  19. Russ March 12, 2016 at 2:44 pm #

    Once margin is determined does it cover all expenses on a particular product? (Less sales commission)

  20. Abidemi March 31, 2016 at 12:33 pm #

    Please this is really giving me issues margin to mark up

  21. Abidemi March 31, 2016 at 12:38 pm #

    Let say cost of sales is 756000 and Mark up is 10%.what will be the value of sales and profit?

    • AK September 2, 2016 at 5:32 am #

      In case of markup Cost is 100 % and case of margin Sale is 100%.

      In your questioned scenario, Cost is given and markup is given.

      Sales : COS/100 * 110

      (75600/100) * 110 = 83,160

      Profit : COS/100 * 10 or SAles- COS

      (75600/100) * 10 83160-75600

      = 7,560/-

  22. David Agyemang-Amponsah April 15, 2016 at 1:56 pm #

    The relationship between margin and Markup is simple especially when margin is given.
    Please note that (Margin% / Cost of Sale%)= Markup
    The moment we say Margin is 13% then the corresponding Cost of sale is 87%,
    When margin is 16.7% the corresponding percentage of cost of sale is 83.3% . Just add the two and you have 100%.
    By the above we have 13%/87%= 14.94% ~ 15%

    16.7%/83.3%= 20.04%~20%
    Compare this with the table above. Do the rest and see what you get.
    Remember Cost of sale in %age is Cost/Selling

  23. simon George April 23, 2016 at 1:07 am #

    sorry friends..
    if I’ve been given this
    ” uniform sales of goods being cost plus 25 per cent”
    then is this margin or mark up?
    …..plz email me at nchimbisimon@gmail.com
    …..or WhatsApp 0672099957

  24. David A-Amponsah May 11, 2016 at 11:57 am #

    now Selling S= C(1+Mu)………………………….(1)
    also Selling S = C/(1-Mg)………………………….(2)

    Where S is selling, C is Cost, Mu is mark-up and Mg is Margin
    (1) =(2) Therefore

    C(1+Mu) = C/(1-Mu) which gives

    1+Mu = 1/(1-Mg)

    Make Mu the Subject Mu= (1/(1-Mg)) -1

    Also Mg= 1-(1/(1+Mu))

    Insert

    • Rur. June 8, 2017 at 5:27 am #

      Thank you David , this was sooooo brief and useful

  25. nisi June 5, 2016 at 1:41 pm #

    no one is saying why they come up with figures eg 15% markup or why 33.33% margin of profit… I’m no accountant by any means. i only do math to save my ass. but i do know that i must make a profit, not just break even. more importantly will i be pushing people too far with that price? i do no favors for free in my business – we call it money pinching.
    but whatever may be my profits for selling item X must contribute an equal percentage to total costs of keeping shop open. not gonna come out of pocket, that’s the idea. so if it’s more than what customers want, i sell at break even to get rid of it. but my mark up is rarely a figure from the air and is usually determined after i know my break even.

    trying the entrepreneurs hand.
    NKB

  26. confused June 9, 2016 at 10:10 am #

    I came across this question yesterday while attempting to help my son with a commerce course….I think all I did was confuse him more…can anyone lend a proper explanation…

    “Our expenses run about 22% of sales and we have a 10% profit target. What mark-up do we need to apply to our products to achieve this”

    • VJ Grimes August 19, 2016 at 8:27 pm #

      Huh? Why’d they throw in that 10%? Isn’t “profit” determined as the corollary of “expenses” (synonymous to costs)?
      You are already at 88% for “Profit to Cost” (markup) or even 78% for “Profit to Price” (margin)
      Assume sales means Gross Revenue from Selling; and assume expenses means all Costs.
      **Markup is = Profit compared to the Cost
      i.e. [(Your Price – Cost) / Cost], useful for setting price.
      e.g. On an item you priced and sold for $100, costs were 22% of gross Sales Revenue, so $22.
      Aren’t you already making (100 – 22) = $88.63? or 88.6%
      Or even to switch, and talk about it in terms of margin (of profit compared to price) …
      **Margin is = Profit compared to your Price
      i.e. [Price – Cost) / Price}, useful for expressing profitability.
      e.g. ($100 – $22)/100, is 78%

  27. Remite June 24, 2016 at 3:31 am #

    How do you calculate mark up percentage ? Example; what is the average selling price of 1000 units out of 10000 units to make a profit of 2.5million when the selling price of 9000 units is 3100 per unit, labour cost per unit is 300, fixed cost is 2000000 and variable cost per unit is 950…….

  28. Franny July 29, 2016 at 12:26 pm #

    Pls someone help

    Can net profit margin be converted to net markup profit?
    If yes how? If not why?

  29. bles August 16, 2016 at 12:24 am #

    cost: $100
    selling price: $150
    profit: $50
    mark-up = profit/cost = $50/$100 = 0.5 => 50%
    margin = profit/selling price = $50/$150 = 0.33 => 33%

  30. Steven October 17, 2016 at 6:47 pm #

    This is the longest string I have ever seen to explain something so simple. I am absolutely amazed at how many people are so ignorant of something so simple. bles, you are correct. Both can be %, both can be $. They are NOT the same thing.

  31. Luke November 23, 2016 at 5:06 pm #

    Hi,

    Let’s say we have 500,000$ in sales.
    We have fixed fees (building, transport, salaries connected to those sales) of 200,000$. Which is 40% of our sales.

    In order to start making money, should we aim at 40% markup on our products or 40% gross margin.

    Thank you,

  32. Kiwi April 29, 2017 at 1:39 pm #

    There are a lot of answers here which don’t make a lot of sense.

    Here is the difference between MARKUP and MARGIN in a nutshell;

    – MarkUp is the % you add to your cost price (which becomes your sell price)

    – MARGIN is the amount you can discount to get back to your cost price

    As some show on this post, you cannot give 25% discount if your Mark Up is 25% or you’ll be losing money.

    $100 cost + 25% Mark Up = $125

    This Mark Up (25%) is calculated on $100 – so it’s obvious you cannot discount 25%, as 25% of $125 is always going to be higher than 25% of $100

    Keep it simple guys!

    Cost Price $100
    Mark Up 25%
    Sell price is $125
    Margin is 20%

    * FIND OUT THE MARKUP – Sale price / Cost Price ie $125 / $100

    * CALCULATE SELL PRICE – Cost x 1.25 (1.your MarkUp %)

    * CALCULATE MARGIN (The Amount of Discount which brings you back to your cost)

    Step1 – Cost price / Sell price ie $100/$125 = 0.8 (0.8 equates to 80% as 0.8 is 80% of 1)

    Step 2 – 1 – 0.8 = 0.2 which equates to 20% Margin

    You can buy Margin calculators which you can use to calculate your selling prices to give you the desired margin you want or need.

    Have a great day! 🙂

  33. Fazal May 27, 2017 at 1:53 am #

    Margin Vs Markup: Markup is just percentage up in pricing while margin is how much you can earn if you had 100Dhs Sales. Let say a product price is 10Dhs and you markup 50% the price will be 15Dhs where you can make 5Dhs while margin is (15-10)/15*100 = 33.33.
    So if you have a sell of 100Dhs you make 33.33. In pricing these both terminologies are considered but mostly we are just focusing on markup

  34. Andrew HK June 7, 2017 at 10:33 am #

    Hi all, here’s another way to look at it:

    Markup % = (Price – Cost) / Cost
    Margin % = (Price – Cost) / Price

  35. Terry October 9, 2017 at 8:30 pm #

    The simplest way to calculate profit on return is this.
    Use 100 as your base figure. If you want a return of 25%, and you cost price is 1.00
    Subtract 25 from 100=75……1.00 divide by 75xby 100=1.33333, rounded to 1.33. This is profit on return, if you want 33%, subtract 33 from 100=67, divide 1.00 by 67 and multiply by 100 =1.49. This is the formula for profit on return.
    Mark up is totally different as you are all aware, 25% mark up on 1.00 is 1.25…….33% mark up is 1.33 and so on.
    My source?, over 20 years as a buyer for a very large retail chain, profit on return is the general method in the industry.

  36. James November 16, 2017 at 11:09 am #

    Simple answer! Use Margin Pricing to set your prices. This way you know what your Margin will be on any sale. Markup Pricing is a surefire way of losing money!

  37. Den January 19, 2018 at 7:14 am #

    This is how it works for me.
    Margin (eg.20%): COGS – 80%
    Price – 100%

    If COS is known and you want to find the price: COGS x 100 / 80.
    If Price is known and you want to find the COGS: Price x 80 / 100.

    Mark-up (eg.30%): COGS – 70%
    Price – 100%
    The same principle apply.

    If my COGS is $16,750 and my margin is 16%: $16,750 x 100 / 84 = $ 19 940,5
    If my COGS is $16 750 and the mark up I add equals to 24%: $ 16 750 * 124 / 100 = $ 20 770.

    I also personaly like these simple formulas:
    Selling price = COG (or cost per unit) x (1.00 + markup percentage)
    Selling price = COG (or cost per unit) / (1 – required margin).

    And what I do hate is different names of plain margin and mark-up you may see in different literature which make you confusing.

    • Den January 19, 2018 at 7:15 am #

      My mistake.

      Mark-up (eg.30%): COGS – 100%
      Price – 130%

  38. sam February 16, 2018 at 2:22 pm #

    In retail, we do it differently.

    To find markup %, we use:
    Retail price – Cost/Retail Price

    To find cost, we use:
    Retail price/(1-markup%)

  39. CurtRK March 22, 2018 at 9:40 am #

    Another example of what happens when finance people try to explain financial concepts to sales people.

    Sales people learn most of the “accounting” from other sales people, which is why they are confused when a person with financial training tries to set them straight.

    It’s not wrong to use either ratio (gross margin or markup) in your business, but you do need to make sure everyone understands the difference and is on the same page so you can avoid needless confusion. That is a matter of internal communication, unfortunately another major obstacle many companies struggle with.

    This is a great article – share it with your sales department. I also suggest for CFO’s or Controllers to put together a simple presentation explaining this is terms your co-workers will understand.

  40. Jame$ March 29, 2018 at 5:35 pm #

    So, when using the ‘buy high, sell low, make it up in volume’ business model, my markup marginally makes a profit, regardless of how many COGS on my gear (product). Thus, we all know when profitability becomes marginal, salespeople all got to the BAR.

  41. Steve April 9, 2018 at 2:12 pm #

    How can I make the margin calculator shown above? I am trying to figure out the excel formula that I would I I need to calculate the sell price of a product with (Cost & GP%). I worked out on a calculator the example below but excel does not work the same. I would like to make a margin calculator in excel for my sales team

    EXAMPLE DATA
    Cost – $300.00 GP% – 15%

    300/(300-15%)×300 This works on a calculator but NOT in excel

    Sell Price – $352.941176 – correct on calculator
    Sell Price – $300.15 – THIS IS INCORRECT IN EXCEL

  42. finding a Real estate agent in hurstville April 30, 2018 at 5:52 pm #

    It’s difficult to find well-informed people on this subject, but you sound like
    you know what you’re talking about! Thanks

  43. SHEHRIYAR May 7, 2018 at 2:35 am #

    IST VERY HELPFUL TO UNDERSTAND THE DIFFERENCE BETWEEN MARGIN AND MARKUP THANK YOU

  44. Pat May 21, 2018 at 9:27 am #

    How do you transition margin or markup to basis points…..and is this common to use basis points pertaining to consumer goods purchasing?
    Thankyou

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