BusinessDownloads

Profit margin vs Markup – What’s the difference and how do I calculate them?

This may be obvious to some but knowing the difference between how much you markup something and the margin received is crucial. Margin and profit are the same thing. Marking up an item is adding on a percentage, above the cost price, to get to the final selling price. Margin is the %/Rand value of what is realized when and item sold, and is the difference of the selling price minus the cost price. This is represented as a percentage or Rand value.

Markup and margin are mutually exclusive and although have a direct connection are not one in the same. A 50% markup on your cost price does not mean a 50% margin. However, a 50% discount is the same as removing 50% of the margin. So pay close attention when you run discounted offers and promotions.

Markup vs Margin Comparison Table

Below illustrates the difference in margin as the markup increases or decreases. From this you can clearly see that margin doesn’t equal the same amount as markup.

Markup and margin reference table

Download .XLS with full table below.

Calculating Margin as a % or Rand value

To find out what the margin (% value) is for an item the following formula should be used.
(Selling price – cost price) / Selling price = X%
(R200 – R123) / R200 = 38.5% (0.385) or R77

Calculating Selling price from a desired margin %

If you’d like to do things the other way round and calculated the selling price and you know what margin you need then work from the following.
If the cost for an item is R500 and you want a 30% margin:
R500 / (100%-30%)
R500 / (70%)
R500 / .70 = R714.29

Download Excel Document with Retail Formulas

Download Excel Document with Retail Formulas

Previous post

Tips & Ideas for naming your online business or brand

tradeshow
Next post

4 Ways to Source South African, UK and International suppliers

Mr Mantality

Mr Mantality

Lover of gadgets, men's culture, cool stuff, Earl Grey tea and all things manly. An optimist in his prime. When he's not keeping the wheels turning at Mantality HQ you'll find him trawling the web, and visiting trade shows to find the newest and coolest gadgets. During his down time he's usually with his 2 dogs, on the golf course, cycling or basking in the literary company of Oscar Wilde, Bret Easton Ellis or Martin Amis whilst drinking espresso strong enough to strip paint.

2 Comments

  1. Jorge
    July 11, 2016 at 3:37 pm — Reply

    Hi, would you be able to assist with he following:
    How to calculate a mark up that decreases as the cost price increases. It could be be a curved or linear relationship.
    Thanks!

    • July 21, 2016 at 10:26 am — Reply

      Hi Jorge, probably best to work (in Excel) from a tiered pricing system where you have a base markup and then columns to the right for each price tier. Each price tier would deduct the desired “mark down” you’re looking for. Hope that helps.

Leave a reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>