Margin Vs. Mark-up
What Is the Difference Between Margin and Mark Up?
Although they are related, they are not the same thing — and confusing them can significantly impact pricing decisions.
Mark Up
Mark Up is based on COST. It shows how much you increase the cost to determine your selling price.
Formula:
Mark Up % = (Selling Price – Cost) ÷ Cost
Example:
· Cost = $10
· Selling Price = $15
Mark Up = ($15 – $10) ÷ $10 = 50%
You marked the product up 50% from cost.
Margin
Margin is based on SELLING PRICE. It shows how much profit you keep from the selling price.
Formula:
Margin % = (Selling Price – Cost) ÷ Selling Price
Example:
· Cost = $10
· Selling Price = $15
Margin = ($15 – $10) ÷ $15 = 33.3%
You keep 33.3% of the sale as profit.
Why This Matters
If you think you’re targeting a 40% margin but accidentally apply a 40% markup, your actual margin will only be about 28.6%, which can seriously impact profitability.
Quick Memory Trick
- Mark Up = Add ON to cost
- Margin = What you keep FROM the sale
