Markup vs Margin

A quick breakdown of the difference between Margin vs Markup.

Markup vs Margin Differences

Is there a difference between margin vs markup? Absolutely. 

These two terms are being used interchangeably to mean gross margin, but that misunderstanding may be the menace of the bottom line. Markup and profit are not the same. The accounting for margin vs mark-up is also different! 

Markup percentage is the difference between the actual cost and the selling price.
Gross margin percentage is the difference between the selling price and the profit.

So, who rules when seeking effective ways to optimize profitability? Many mistakenly believe that if a product or service is marked up, say 25%, the result will be a 25% gross margin on the income statement. However, a 25% markup rate produces a gross margin percentage of only 20%.

Here is a handy calculator to help visualize Margin vs Markup: Margin Calculator

Margin vs Markup Chart

15% Markup = 13.0% Gross Profit

20% Markup = 16.7% Gross Profit

25% Markup = 20.0% Gross Profit

30% Markup = 23.0% Gross Profit

33.3% Markup = 25.0% Gross Profit

40% Markup = 28.6% Gross Profit

43% Markup = 30.0% Gross Profit

50% Markup = 33.0% Gross Profit

75% Markup = 42.9% Gross Profit

100% Markup = 50.0% Gross Profit