Difference between margin and markup: user guide

In the diverse and multifaceted world of commerce, there is one issue that often confuses even the most experienced professionals, namely the difference between margin and mark-up.

Let's start with the definitions:

The markup is a value expressed as a percentage that represents the increase in cost to obtain a selling price.

Selling price = Cost x (1 + Markup %)

The margin is a value expressed as a percentage that represents the profit obtained by selling a product at a given price with a given cost. Its translation is Markdown.

Margin % = (Price - Cost) / Price

In absolute terms, the two values represent the same amount, but in percentage terms they are very different. For this reason, it is important to understand the difference between margin and mark-up and to use the correct percentage.

To calculate the mark-up from the selling price and cost:

Markup = (Price - Cost) / Cost

Let's move straight on to an example.

Example: We have a product that cost us 10 euros and we want to resell it for 100 euros. What will our margin be as a percentage and what will the mark-up be?

The margin will be:

[(100-10)/100]*100 = 90% margin on sales

While the mark-up we need to apply to achieve that percentage margin will be:

[(100-10)/10]*100= 900% markup

Conclusions

Your margin will always be less than 100%, while the mark-up rises dramatically without limit. In our example, it rose to 900%.

This table shows how the markup varies based on the margin percentage.

Cost	Price	Markup	Margin
10	25	150,00%	60,00%
10	35	250,00%	71,42%
10	45	350,00%	77,77%

In the following table, you can see what happens in the case of a below-cost sale.

Cost	Price	Markup	Margin
10	9	-10,00%	-11,00%

As mentioned, these percentages represent the same absolute value, but clearly the perception they give to the reader is completely different. For this reason, depending on the context, it may be useful to use one percentage rather than the other.

Proposing a 900% mark-up or a 90% margin has a completely different effect on those who may not be particularly familiar with the issue.

For the same reason, confusing the two percentages when evaluating the earnings of our company or corporation can be a problem.