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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!