Margin The percentage margin is the percentage of the final selling price that is profit.
Markup A markup is what percentage of the cost price do you add on to get the selling price.
These are different, a selling price with a margin of 25% results in more profit than a selling price with a markup of 25%.
With margins, a 50% margin means that half the selling price is profit. In markups, that is a 100% markup (you have added 100% of the cost price to make the selling price). With margins, a 100% margin is only possible if the cost price is zero.
To understand why margins are higher, imagine an item that costs fifty dollars. If you sell it with a margin of 50% – that means fifty percent of the selling price should be profit. Thus, if you sell it at 100 dollars, half of the selling price is profit; a margin of 50%.
If you sell the same item (cost fifty dollars) with a markup of fifty percent, you add fifty percent of the cost price. Fifty percent of the cost price is twenty-five dollars. This makes the total selling price seventy-five dollars; a 50% markup.
How to Calculate Margins
You will often have to calculate margins. Either to work out a selling price from a cost price, or to work out what margin a certain selling price would result in.
Selling Price from Cost
The full formula for working out a selling price from a cost price and a certain margin is :
selling = cost/((100-margin)/100)
Thankfully there is a quicker way to work it out.
For a five percent margin, divide the cost price by 0.95.
For a ten percent margin, divide the cost price by 0.9.
For a fifteen percent margin, divide the cost price by 0.85.
For a twenty percent margin, divide the cost price by 0.8.
For a twenty-five percent margin, divide the cost price by 0.75.
For a thirty percent margin, divide the cost price by 0.7.
Hopefully you can see the pattern.
Margin from Selling price and Cost
Sometimes you will have a cost and selling price, and need to know what margin that results in. The formula is :
margin = (1 – (cost/selling))x100
If cost/selling is 0.95, the margin is five percent.
If cost/selling is 0.9, the margin is ten percent.
If cost/selling is 0.85, the margin is fifteen percent.
If cost/selling is 0.8, the margin is twenty percent.