Markup vs Margin: What's the Difference?

Ever wondered about the difference between markup and margin? These two terms often confuse business owners and students alike. Let's break them down in simple terms!

Markup: Adding to Your Cost

Markup is the amount you add to your cost to set your selling price. It's always based on your cost.

Formula: Markup % = (Selling Price - Cost) / Cost x 100

Example: You buy a t-shirt for $10 and sell it for $15. Markup = ($15 - $10) / $10 x 100 = 50%

You've added 50% to your cost to get your selling price.

Margin: Your Profit Slice

Margin shows how much of your selling price is profit. It's always based on your selling price.

Formula: Margin % = (Selling Price - Cost) / Selling Price x 100

Example: Using the same t-shirt: Margin = ($15 - $10) / $15 x 100 = 33.33%

This means 33.33% of your selling price is profit.

Key Differences

1. Markup is based on cost; margin is based on selling price.
2. Markup percentage is always higher than margin for the same sale.
3. Markup shows how much you've added to your cost; margin shows your profit portion.

Understanding these differences can help you price your products effectively and understand your profits better. Happy selling!