zmVault/markup-vs-margin.md

id, aliases, title, tags, dg-publish

id	aliases	title	tags	dg-publish
		Markup vs. Margin	authorship/original destiny/permanent status/complete type/encyclopedia type/encyclopedia-entry	true

Markup vs. Margin

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{Margin} = \frac{\text{Profit}}{\text{Sell Price}}

Example

Suppose a product that

• costs $80 to produce
• is sold for $100

\text{Profit} = \$100 - \$80 = \$20, \quad
\text{Markup} = \frac{(\$20)}{\$80} = 25\%, \quad
\text{Margin} = \frac{(\$20)}{\$100} = 20\%

Converting Between Markup and Margin

\text{Margin} = \frac{\text{Markup}}{1 + \text{Markup}}, \quad
\text{Markup} = \frac{\text{Margin}}{1 - \text{Margin}}

Warning

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.