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MARK UP AND MARGIN MADE EASY
Nick Roberts
Understanding mark-up and margin and the difference between the two is essential if you're a business owner, yet I find that many, even those with many years experience, still don't.
Mark-up is the amount (the profit) you add to the cost of a product to arrive at the selling price and it's normally expressed as a percentage. To find the mark-up, divide the profit by the cost price and multiply by 100/1.
Thus if the cost was $4 and you add $1 profit: 1/4 x 100/1 = 25%
On the other hand, the margin is the profit you make on each sale. To arrive at the margin, divide the profit by the selling price and multiply by 100/1.
Thus if the selling price was $5 and you make a $1 profit: 1/5 x 100/1 = 20%
You can also work out the margin from the mark-up and vice versa if you use fractions. Cast your mind back and you may remember that the numerator is the top part of a fraction, whilst the denominator is the bottom part.
To find the margin from the mark-up take the same numerator to be the numerator of the margin, then for the denominator of the margin take the total of the mark-up's denominator plus the numerator:
| Mark-Up |
Margin |
|||||
| I |
I |
= |
I |
|||
| 4 |
4 + I |
5 |
||||
| 2 |
2 |
= |
2 |
|||
| 11 |
11 + 2 |
13 |
||||
To find the mark-up from the margin take the same numerator to be the numerator of the mark-up, then for the denominator of the mark-up take the figure of the margin's denominator less the numerator:
| Margin |
Mark-Up |
|||||
| I |
I |
= |
I |
|||
| 6 |
6 - I |
5 |
||||
| 3 |
3 |
= |
3 |
|||
| 13 |
13 - 3 |
10 |
||||
Setting your prices and ensuring you make a decent profit should now be easy!
If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use our form. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.