Lessons · Accounting · markup versus margin
Markup and margin are not the same number
Markup is profit as a share of cost. Margin is profit as a share of price. The same sale gives two different percentages, and each has its own use.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
A supplier says the trade gets a 50% markup; the owner hears 50% margin and prices the goods too low for the year. The two words describe the same money over different bottoms, and mixing them is the most expensive vocabulary error in retail.
How to think about it
Ask what the percentage is of. Over cost: markup. Over price: margin. To price for a target margin, divide cost by one minus the margin; to price for a target markup, multiply cost by one plus the markup.
Worked example
Cost 40, sold at 60 → profit 20One sale.
Markup = 20 / 40 = 50%Profit over cost.
Margin = 20 / 60 = 33.3%Profit over price. Same 20, smaller percentage, because price is the bigger number.
Price for a 40% margin on a cost of 60 = 60 / (1 − 0.40) = 100Pricing from a margin: divide, do not multiply.
Your turn
Profit 30 on a sale, margin 25%. Write the line with the price filled in.
Margin = 30 / = 25%
Solve one, graded on the server
The trap
Applying a margin percentage to cost. A 40% margin on a 60 cost is not 60 × 1.40 = 84; at 84 the margin is only 28.6%.