vault backup: 2026-02-14 22:56:05

markup-vs-margin.md

@@ -12,16 +12,27 @@ dg-publish: true
 ---
 # Markup vs. Margin
 
-**Markup** and **margin** are both terms to describe the percent profit of a sold good or service.
-**Markup** describes an item's profit relative to its cost to the merchant.
-**Margin** describes an item's profit relative to its cost to the customer.
+**Markup** and **margin** describe the profit of a sold good or service in terms of its cost.
+
+$$
+\text{Profit} = \text{Sell Price} - \text{Cost}
+$$
+
+**Markup** describes an item's profit as a fraction of its cost to the merchant.
+
+$$
+\text{Markup} = \frac{\text{Profit}}{\text{Cost}}
+$$
+
+**Margin** describes an item's profit as a fraction of its sell price,
+its cost to the customer.
 
 $$
-\text{Profit} = \text{Sell Price} - \text{Cost}, \quad
-\text{Markup} = \frac{\text{Profit}}{\text{Cost}}, \quad
 \text{Margin} = \frac{\text{Profit}}{\text{Sell Price}}
 $$
 
+## Example
+
 Suppose a product that
 * costs $80 to produce
 * is sold for $100
@@ -32,8 +43,14 @@ $$
 \text{Margin} = \frac{20}{100} = 20\%
 $$
 
-Because of \*waves hands\* finance reasons,
-contractors (and sellers of products and services in general)
+Contractors (and sellers of products and services in general)
 almost exclusively talk about profit in terms of margin.
 Even if someone says "15% _markup_"
 they may still be talking about margin.
+
+## Converting Between Markup and Margin
+
+$$
+\text{Margin} = \frac{\text{Markup}}{1 + \text{Markup}}, \quad
+\text{Markup} = \frac{\text{Margin}}{1 - \text{Margin}}
+$$