Understand the difference. Make better pricing decisions.
Many business owners confuse margin and markup, leading to pricing mistakes that can cost thousands in lost profit. Here's what you need to know:
Gross Margin % = (Selling Price - Cost) ÷ Selling Price × 100
This tells you what percentage of each sale is profit. A 40% margin means you keep 40 cents of every dollar.
Markup % = (Selling Price - Cost) ÷ Cost × 100
This tells you how much you're adding on top of cost. A 100% markup means you're doubling your cost price.
If your supplier says "we need a 50% markup," you might think that gives you a 50% margin. It doesn't! A 50% markup only gives you a 33.3% margin. Understanding this difference is crucial for profitable pricing.
| Cost | Markup % | Price | Margin % |
|---|---|---|---|
| $50 | 100% | $100 | 50% |
| $50 | 50% | $75 | 33.3% |
| $50 | 200% | $150 | 66.7% |
Want to dive deeper? Read our complete guide: KPIs - Margin and Markup Explained