See Also:

Gross Profit Margin Analysis

Retail Markup

Chart of Accounts (COA)

Margin Percentage Calculation

Markup Percentage Calculation

**Margin vs Markup 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 is the gross profit percentage on cost prices or cost of goods sold, while margin is the gross profit percentage on selling price or sales.

## Effective Ways to Optimize Profitability

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!**

Download The Pricing for Profit Inspection Guide

**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:

- Use a pricing model or pricing tool to quote sales. Have the tool calculate both the markup percentage and the gross margin percentage
- Relate gross margin percentage per sales invoice to income statement
- Organize your chart of accounts to compare gross margin rate to sales quotes
- Educate your sales force on the differences. By targeting the gross margin percentage vs the markup percentage you can throw an additional 2 – 3 percent profit to the bottom line!

## Establish a Price

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.

**Strategic CFO Lab Member Extra**

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

**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

*(Originally published by Jim Wilkinson on July 24, 2013)*

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.

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.

Steve,

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

Seriously. Geez.

Lol, yea just glad your not working with Steve

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

John

Don’t waste your money on any classes.

Your response suggests that you lack the intelligence to benefit from them.

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

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

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

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.

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

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!

Ms. Olivia Durr,

That is perfect explanation – thanks so much !

Smart and good looking….

Anyway – thank you for your simple explanation.

Kind Regards,

Rob

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?

Rick, late reply but you are ABSOLUTELY correct and any sales guy getting into business needs to just learn it the way you describe period. (1.0 – desired margin) = Sell Price. Makes more $$ than straight mark-up.

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

Simplest & intellectual form, to explain.

Very well explained. Thanks

This entire article and comment section is INCREDIBLY overkill. It’s just basic math where if you take 50% more of something, and then want to take it away again from your new total, you have to reduce by 33%. It’s just 1 less on the bottom half of the fraction. So 1/3 more = 1/4 total. 1/7 more = 1/8 total. This entire page can be summed up very very easily like that.

A similar thing is “150% more apples” vs “150% apples”. One is multiplying by 2.5, the other by 1.5.

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?

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

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.

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 🙂

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

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.

Are you really making a profit , if your only make a portion of the product back. Even if its 50% mark up, wouldn’t you then just be paying that “profit” to repurchase the product sold.

$8 wholesale (50%

16 retail. $8 profit to repurchase an $8 product =no money into the business

You made it easy to understand. Thumbs Up!

Thank you so much !

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.

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

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.

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.

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??

33.33% markup equals to 25% gross margin.

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.

what is

33 1/3% to margin

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.

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.

^^^^^^

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

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

What a wonderful explanation! Thanks Bro.

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

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.

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

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?

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 🙂

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

You are all messed up.

And nerds.

Go outside and get some fresh air.

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.

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.

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!

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

Please this is really giving me issues margin to mark up

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

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/-

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

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

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

Thank you David , this was sooooo brief and useful

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

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”

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%

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…….

Pls someone help

Can net profit margin be converted to net markup profit?

If yes how? If not why?

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%

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.

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,

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! 🙂

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

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

Markup % = (Price – Cost) / Cost

Margin % = (Price – Cost) / Price

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.

Nice

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!

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.

My mistake.

Mark-up (eg.30%): COGS – 100%

Price – 130%

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%)

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.

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.

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

It’s difficult to find well-informed people on this subject, but you sound like

you know what you’re talking about! Thanks

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

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

Thankyou

New Price = Sales Price

Old Price = Cost of Product

New Price – Old Price / Old Price…….Is how to calculate Mark Up

New Price – Old Price / New Price…..Is how to calculate Margin

Example:

MARK UP: $63,500 (New Price) minus $50,000 (Old Price) = $13,500 divided by $50,000 (Old Price) = 27% MARK UP

MARGIN: $63,500 (New Price) minus $50,000 (Old Price) = $13,500 divided by $63,500 (New Price) = 21% MARGIN

All of this is simple. You will never see the term “MARKUP” on a financial statement. “Markup” can easily exceed 100%. Markup can be 200%,300%,500%, or even higher. Percentages like that can distort financial statements. Be realistic. No one makes a profit like that. Take a look at a tax return that is submitted to the IRS. You will not see the term “MARKUP”. You will see a term like “Gross Profit”. “Gross Profit” and “Gross Margin” are pretty much the same. It’s not worth a debate.

Merchants have to purchase items to sale. You have Cost Of Goods Sold (COGS). Nobody gives you anything these days, so it’s hard to have 100% Gross Profit (or Margin) or whatever you want to call your real world profit on the sale of an item.

Learn your “Cost Multipliers” to achieve your GROSS PROFIT based on the SELLING PRICE of an item. You can find a Gross Profit % Multiplier Reference Chart easily on the internet. Learn your “cost multipliers” to arrive at a selling price that will allow you to make your desired Gross Profit.

A few quick examples:

Item Cost x 1.50=Selling Price (The merchant will obtain a 33% GROSS PROFIT based on SELLING PRICE).

Item Cost x 1.55=Selling Price (The merchant will obtain a 35% GROSS PROFIT based on SELLING PRICE of item).

Item Cost x 2.00=Selling Price (The merchant will obtain a 50% GROSS PROFIT based on SELLING PRICE (It might very well be 100% profit based on COST, but remember, you have to pay for that item before you can sell it). Try to be realistic. Don’t fool yourself. Are you really making a 500% profit on the sale of an item. If you think you are, you are fooling yourself.

Item Cost x 2.5=Selling Price. (The merchant will realize a 60% GROSS PROFIT based on the SELLING PRICE of that item).

Don’t try to figure all this out. You will drive yourself crazy.

Learn your “multipliers”. Learn how to price your merchandise profitably. Good Luck!

Thanks for this

You’re welcome, Naijaflash! Let us know if you need anything else.