Margin Vs Markup: The Quick Differences

Margin and markup, one of the two most commonly used terms in the business world, yet it feels like no one knows what they mean. They both correlate to a single purchase, yet have two completely different numbers.

Here is our guide on the differences between margin vs markup when it comes to selling items.

Margin

Margin, or more commonly referred to as profit margin, refers to the percentage that it cost to achieve this amount of money. Typically this is to see how much revenue and profit you are grossing from each sale.

If you make a sale that raked in $10,000, but it cost $2,000 to pay employees and purchase that time for sale in the first place, then your margin is 80%.

This is done by taking the total revenue ($10,000) subtracting the cost ($2,000), which equals $8000. You then divide $8,000 from $10,000, getting you your gross profit margin of 80%.

Markup

Markup will typically only refer to the individual item that you are selling. So instead of looking at the revenue, you are looking at the cost of the individual item.

For instance, when talking about the same sale that happened earlier, our gross markup would be 400% for that single item.

This is done by taking the total number of the sale ($10,000) and subtracting the cost ($2,000) just like earlier, which equals out to be $8,000. But this time, instead of dividing by the revenue, you divide by the costs. So, $8,000 divide by $2,000 gets us 4, which in percentages equals 400%.

Why Do You Need Two Different Terms?

The two different terms are needed to express to investors and yourself on how much you are making on a product. If you notice that your profit margin is lower than you were hoping, you can always talk to the wholesaler or manufacturer into getting you better margins.

This way, you can keep the same price for customers, but continue to make more money on it.

Markup is more for your wholesaler/manufacturer. If they see you marking up the product insane amounts, they might not be as nice when it comes to giving you a break on the margins.

Margin also takes into account the total revenue and costs from various sources like employees, rent, the cost of the good. It can be considered a more broad approach, compared to markup, which is directly related to a single product and its cost.

Keep this in mind when comparing gross margin vs markup when talking to individuals interested in helping your business grow.

For those looking for an in-depth guide on profit margin vs markup, check out https://blog.bidclips.com/margin-vs.-markup.

Margin vs Markup: Knowing the Difference Saves You a Headache

Knowing the difference between margin vs markup on your best selling products can help you in both a business sense and an accounting sense. Investors and yourself should be looking at these numbers to ensure you are not getting ripped off and are maximizing your profits.

Don’t be afraid to negotiate these numbers so that you are maximizing your time and money while delivering on items for your brand.

If you want to learn more about being an entrepreneur, be sure to check out our other articles. If you know a business that has no idea what these words mean, be sure to share this article with them.