Mitchell 1 Quick Answers

Margin The percentage margin is the percentage of the final selling price that is profit.

Markup A markup is what percentage of the cost price do you add on to get the selling price.

These are different, a selling price with a margin of 25% results in more profit than a selling price with a markup of 25%.

With margins, a 50% margin means that half the selling price is profit. In markups, that is a 100% markup (you have added 100% of the cost price to make the selling price). With margins, a 100% margin is only possible if the cost price is zero.

To understand why margins are higher, imagine an item that costs fifty dollars. If you sell it with a margin of 50% - that means fifty percent of the selling price should be profit. Thus, if you sell it at 100 dollars, half of the selling price is profit; a margin of 50%.

If you sell the same item (cost fifty dollars) with a markup of fifty percent, you add fifty percent of the cost price. Fifty percent of the cost price is twenty-five dollars. This makes the total selling price seventy-five dollars; a 50% markup.

How to Calculate Margins

You will often have to calculate margins. Either to work out a selling price from a cost price, or to work out what margin a certain selling price would result in.

Selling Price from Cost

The full formula for working out a selling price from a cost price and a certain margin is :

Thankfully there is a quicker way to work it out.

For a five percent margin, divide the cost price by 0.95.

For a ten percent margin, divide the cost price by 0.9.

For a fifteen percent margin, divide the cost price by 0.85.

For a twenty percent margin, divide the cost price by 0.8.

For a twenty-five percent margin, divide the cost price by 0.75.

For a thirty percent margin, divide the cost price by 0.7.

Hopefully you can see the pattern.

Margin from Selling price and Cost

Sometimes you will have a cost and selling price, and need to know what margin that results in. The formula is :

If cost/selling is 0.95, the margin is five percent.

If cost/selling is 0.9, the margin is ten percent.

If cost/selling is 0.85, the margin is fifteen percent.

If cost/selling is 0.8, the margin is twenty percent.