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 CostProfit = $2,000 , Rack cost = $10,000 | 20% Markup on $8,000 Nett CostProfit = $1,600 , Rack cost = $9,600 |
Example 2 - Starting with Nett and Profit | |
$7,500 Nett Cost and $2,500 ProfitMargin = 25% | $7,500 Nett Cost and $2,500 ProfitMarkup = 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% |
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