While both measure profitability, you might be wondering how to differentiate between margin vs markup.
Margin helps you understand profit as a portion of your selling price:
- Shows what percentage of revenue becomes profit
- Used for financial statements and comparing profitability
- Easier to evaluate financial health
- Example: A 25% margin means $25 profit from each $100 sale
Markup shows how much you’ve increased cost to set prices:
- Reveals the multiplier applied to your costs
- Used for pricing decisions and inventory valuation
- Better for quick price calculations
- Example: A 33.33% markup on $75 cost creates that same $100 sale price
| Quick tip: Higher markup percentages yield smaller margins than you might expect. A 50% markup only produces a 33.33% margin – a common source of pricing errors. |