I often hear people mixing up the terms markup and margin.
It is mainly due to suppliers trying to confuse merchants as a 33% markup sounds better than a 25% margin.
It is crucial that you fully understand the difference as it will help you price your goods correctly.
Firstly here is the calculation. Note all calculations are done here EX GST.
You sell an item for $20.
This item costs you $15.
So gross profit is $20-$15=$5
Markup
A markup is what extra you put on an item cost for your profit, which is $5.
It is generally quoted as a percentage, so it is calculated as
(Gross Profit)/(Cost)x100%
=$5/$15 x 100%
=33%
Margin
A margin is what you keep after making the sale.
The gross profit is the same here of $5
Margin is also generally quoted as a percentage, so it is calculated as
(Gross Profit)/(Retail price)x100%
=$5/$20 x 100%
=25%
I recommend that you only use margin so you will be consistent throughout the shop.
To change Markup to Margin use the following formula.
Margin = (Markup / (1+ Markup)) X 100
= 33%/133%x100%
=25%
See the table above I constructed for you to get the margin from a quoted markup quickly.
