Margin versus Markup

Profit margin versus profit markup, or margin on selling versus markup on cost, is a distinction that is often misunderstood by small business owners, contractors, consultants, as well as employees in large corporations. With painful consequences! Margin versus markup is a fundamentally different approach to pricing and profitability. Let me walk you through the calculations and the underlying thinking. If you like my story and the explanation is helpful, then please press the like button below the video.

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Margin is profit divided by revenue, and #markup is profit divided by cost. As an example, let’s take a revenue for your product or service of $100, a cost of $80, and a profit of $20. In both the #margin and the markup calculation, the profit of $20 is the numerator in the equation. However, what you take as the denominator is different! When you calculate margin, you divide profit by revenue. When you calculate markup, you divide profit by cost. So for margin, we take $20 profit divided by $100 in revenue which equals 20%. For markup, we take $20 profit divided by $80 cost, which is a 25% markup.

Philip de Vroe (The Finance Storyteller) aims to make strategy, #finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!