1.5 KiB
1.5 KiB
title, tags
| title | tags | ||
|---|---|---|---|
| Markup vs. Margin |
|
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}}
\begin{align}
\rm Margin &= \rm \frac{(Sell\ Price - Cost)}{Sell\ Price} \\
\rm Margin \times Sell\ Price &= \rm Sell\ Price - Cost \\
\rm Cost &= \rm -1 \times (Margin \times Sell\ Price - Sell\ Price) \\
\rm &= \rm -1 \times Margin \times Sell\ Price + Sell\ Price \\
\rm &= \rm Sell\ Price \times (1 - Margin)
\end{align}
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.