SalevaMarkup and margin: the same profit, measured two ways
Both numbers describe the same rupees of profit. Markup compares the profit with what you paid for the item. Margin compares it with what the customer pays. Because the selling price is always bigger than the cost, the margin is always the smaller percentage. Mixing them up is one of the most common pricing mistakes: a shopkeeper who wants a 25% margin but adds 25% to the cost ends up with a margin of only 20%.
markup % = profit ÷ cost × 100
margin % = profit ÷ selling price × 100
How to use it
- Choose whether you know the markup or the margin, and type the percentage.
- The other percentage appears straight away.
- Add the cost of the item to see the selling price and the profit on one.
Worked example
A bottle of oil costs you Rs 400. With a 25% markup you add a quarter of the cost, Rs 100, and sell it for Rs 500. The profit of Rs 100 is 20% of the Rs 500 selling price, so the margin is 20%. To get a 25% margin instead, divide the cost by 0.75: 400 ÷ 0.75 = Rs 533.33, a markup of 33.3%.
margin = markup ÷ (100 + markup) × 100
markup = margin ÷ (100 − margin) × 100
Common values
| Markup on cost | Margin of price | Cost 100 sells at |
|---|---|---|
| 10% | 9.1% | 110 |
| 20% | 16.7% | 120 |
| 25% | 20% | 125 |
| 33.3% | 25% | 133.33 |
| 50% | 33.3% | 150 |
| 100% | 50% | 200 |
A margin can never reach 100%, because that would mean the item cost nothing. A markup has no ceiling.
Questions
Which one should a shop use?
Either works if you use it consistently. Markup is easier when you price from the supplier's bill. Margin is easier when you compare with your expenses, because rent and wages are paid out of the selling price.
Why is my margin lower than the percentage I added?
Because the margin is measured against the bigger number, the selling price. Adding 25% to the cost gives a 20% margin, not 25%.
Does a discount come off the markup or the margin?
A discount comes off the selling price, so it eats into your margin quickly. The discount calculator shows the largest discount that still keeps the margin you want.
Related reading
- How to price products in a small shop: cost, margin, rounding and when to change
- Profit margin calculator, for profit from a cost and a selling price
- Discount calculator, for the largest discount that keeps your margin
- Break-even calculator, for the sales your margin must cover each month
Saleva reports the profit on each product, worked out from what you actually paid for the stock. Get the free Android app.