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.