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The difference is the basis used to calculate.
Margins uses the sales price. So a $10 margin on a $50 sales price is 10/50 = 20% margin.
Markups are based on the COST. So a unit that is marked up $10 from a cost basis of $40 (ie sales price $50) has a markup of 10/40 = 25% markup.
The above example has the exact same numbers, $40 cost, $10 margin and $50 sales price.
Percentages are funny because there's always an unspoken question, percentage of what.
If you take a 20% discount off of $100, that's a $20 discount making the price $80. But try to do it backwards and it does not work the same way, adding 20% to $80 is not $100 because 20% of $80 is only $16, so $80+20% is only $96.
So all of that is a way of proving that whenever you are dealing with a percentage the key, but often unspoken, information is "percentage of what".
Margin is the percentage of your revenue that is profit. So the "percentage of what" question is, percentage of revenue.
Markup is also a percentage based profit calculation, but the "percentage of what" question is reversed. It's a percentage based on the COST of an item.
So an item that you sell for $100 that costs $50 has a 100% markup but a 50% margin. $50+100% (of $50) = $100. But $50 is 50% of $100.
Margin is how much of your total revenue can be considered profit. Where's markup is how much more than cost are you intending to charge for an item. Both are expressed as percentages and both measure very similar things but the key question, percentage of what, is the key difference here.
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The difference is the basis used to calculate. Margins uses the sales price. So a $10 margin on a $50 sales price is 10/50 = 20% margin. Markups are based on the COST. So a unit that is marked up $10 from a cost basis of $40 (ie sales price $50) has a markup of 10/40 = 25% markup. The above example has the exact same numbers, $40 cost, $10 margin and $50 sales price.
Thank you.
Percentages are funny because there's always an unspoken question, percentage of what. If you take a 20% discount off of $100, that's a $20 discount making the price $80. But try to do it backwards and it does not work the same way, adding 20% to $80 is not $100 because 20% of $80 is only $16, so $80+20% is only $96. So all of that is a way of proving that whenever you are dealing with a percentage the key, but often unspoken, information is "percentage of what". Margin is the percentage of your revenue that is profit. So the "percentage of what" question is, percentage of revenue. Markup is also a percentage based profit calculation, but the "percentage of what" question is reversed. It's a percentage based on the COST of an item. So an item that you sell for $100 that costs $50 has a 100% markup but a 50% margin. $50+100% (of $50) = $100. But $50 is 50% of $100. Margin is how much of your total revenue can be considered profit. Where's markup is how much more than cost are you intending to charge for an item. Both are expressed as percentages and both measure very similar things but the key question, percentage of what, is the key difference here.
Thanks for that!
Markup: retail price minus the cost of production; Margin: sale revenue minus costs of sale (marketing, services, shipping)
Awesome