Margin vs. Markup

Modified on Wed, 30 Oct, 2024 at 9:33 AM

Understanding the Difference Between:

Margin and Markup

Definition

Margin: Margin shows the gross profit earned after paying NETT (COGS) as a percentage of the RACK (revenue)

Markup: Markup shows how much more your selling price is than the amount the service costs you

Useful Terms

Revenue: Earnings before deducted costs (RACK)

COGS: Costs of goods sold (NETT cost to supplier)

Gross Profit: RACK (Revenue) - NETT (COGS)

Margin

Markup

The Gross Profit as a percentage of the Rack Cost.

(Gross Profit / Rack ) x 100

The Gross Profit as a percentage of the Nett Cost.

(Gross Profit / Nett) X 100

Example 1 - Starting with Nett and %

20% Margin on $8,000 Nett Cost

Profit = $2,000 , Rack cost = $10,000

20% Markup on $8,000 Nett Cost

Profit = $1,600 , Rack cost = $9,600

Example 2 - Starting with Nett and Profit

$7,500 Nett Cost and $2,500 Profit

Margin = 25%

$7,500 Nett Cost and $2,500 Profit

Markup = 33.3%

Here is a reference chart on how Margins & Markups correlate with each other:

Margin vs. Markup

Understanding the Difference Between:

Margin and Markup

Definition

Margin: Margin shows the gross profit earned after paying NETT (COGS) as a percentage of the RACK (revenue)

Markup: Markup shows how much more your selling price is than the amount the service costs you

Useful Terms

Revenue: Earnings before deducted costs (RACK)

COGS: Costs of goods sold (NETT cost to supplier)

Gross Profit: RACK (Revenue) - NETT (COGS)

Margin

Markup

The Gross Profit as a percentage of the Rack Cost.

(Gross Profit / Rack ) x 100

The Gross Profit as a percentage of the Nett Cost.

(Gross Profit / Nett) X 100

Example 1 - Starting with Nett and %

20% Margin on $8,000 Nett Cost

Profit = $2,000 , Rack cost = $10,000

20% Markup on $8,000 Nett Cost

Profit = $1,600 , Rack cost = $9,600

Example 2 - Starting with Nett and Profit

$7,500 Nett Cost and $2,500 Profit

Margin = 25%

$7,500 Nett Cost and $2,500 Profit

Markup = 33.3%

Here is a reference chart on how Margins & Markups correlate with each other:

Margin

Markup

13%

15%

16.7%

20%

20%

25%

23%

30%

25%

33.3%

28.6%

40%

30%

43%

33%

50%

42.9%

75%

50%

100%