What is the Difference between Markup and Margin?


Mark Up Calculator

It is amazing how one simple formula can be so confusing to the average business owner. The formula is markup. It is defined as the dollar amount or percentage of the cost of the item added to the item to equal its sales price. Many entrepreneurs especially those in retail confuse this simple formula with margin. To make this as simple as possible, markup is a function of cost and margin is a function of sales.

Let’s walk through a couple of examples to illustrate these two formulas.

Example One:  Markup on Cost

Straight forward, what percentage of the cost do you wish to charge? Let’s say I want a 40% markup on the cost of the item. Whatever the cost, multiply the cost by 40% and add that to the cost to get the sales price. If you paid $100 for the item, the markup is $40, therefore the total sales price is $140.

(Cost * Desired Markup) + Cost = Sales Price
(100 * 40%) + 100 = $140

 Example Two: Margin of Sales

 Same item is sold above for $140 with a markup of 40%. So what is the margin? Margin equals the sales price less the cost which equals $40. Normally, margin is quoted as a percentage of the sales price. Thus, we then take the margin of $40 and divide that number by the sales price of $140 and we get 28.57%.

Margin = Sales Price – Cost
$40 = $140 – $100
Or as a percentage:
Margin % = Margin/Sales Price
28.57% = $40/$140

This is a really nice website of calculators. Go to http://www.calculatorsoup.com/calculators/financial/markup.php to access the Mark-Up Calculator.

Let’s review the terms used here:

  • Markup is the dollar amount on the cost of an item (this term is used when discussing the cost of an item)
  • Markup percentage is the % amount on the cost to get to sales price.
  • Sales Price = cost plus markup
  • Margin in Dollars = sales price – cost (this is the most commonly used format because it is found in the profit and loss statement for the company)
  • Margin % = the margin amount (also the markup in dollars) divided by the sales price

 Remember, the most common form of communication in the business world when discussing how much a company makes on its product is margin percentage. This is because it is found on the income statement (profit and loss statement). Act on Knowledge.

Value Investing

Do you want to learn how to get returns like this?

Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.

There are four key principles used with value investing. Each is required. They are:

  1. Risk Reduction – Buy only high quality stocks;
  2. Intrinsic Value – The underlying assets and operations are of good quality and performance;
  3. Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
  4. Patience – Allow time to work for the investor.

If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above. 

Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:

  1. Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
  2. Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
  3. Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.

Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:

  • Lessons about value investing and the principles involved;
  • Free webinars from the author following up the lessons;
  • Charts, graphs, tutorials, templates and resources to use when you create your own pool;
  • Access to existing pools and their respective data models along with buy/sell triggers;
  • Follow along with the investment fund and its weekly updates;
  • White papers addressing financial principles and proper interpretation methods; AND
  • Some simple good advice.

Value Investment Club

Please Signup
*
Username
Username can not be left blank.
Please enter valid data.
This username is already registered, please choose another one.
This username is invalid. Please enter a valid username.
*
First Name
First Name can not be left blank.
Please enter valid data.
This first name is invalid. Please enter a valid first name.
*
Last Name
Last Name can not be left blank.
Please enter valid data.
This last name is invalid. Please enter a valid last name.
Website (URL)
Website (URL) can not be left blank.
Invalid URL
Invalid URL
*
Email Address
Email Address can not be left blank.
Please enter valid email address.
Please enter valid email address.
This email is already registered, please choose another one.
*
Password
Password can not be left blank.
Please enter valid data.
Please enter at least 6 characters.
    Strength: Very Weak
    Select Your Payment Gateway
    How you want to pay?
    Payment Summary

    Your currently selected plan : , Plan Amount :
    , Final Payable Amount:
    Submit
    Please follow and like us: