Blog > Markup vs Margin: What’s the Difference?

Markup vs Margin: What’s the Difference?

By |Last Updated: June 7th, 2024|

Defining the key differences between margin and markup can yield valuable financial insights for businesses. From understanding the impact on your bottom line to practical examples and real-world applications, you’ll gain the confidence to make informed decisions that propel your business toward greater profitability.

Markups and margins are commonly used in the financial world but can often be misunderstood or used interchangeably. This article will clarify any confusion around these terms and show your business how to correctly calculate profit margins and markups.

Understanding the difference between markup and margin

Understanding the difference between markup and margin is crucial for any business owner or finance professional, as it can significantly impact the financial health of a business. Simply put, profit margin is the percentage of revenue that results in a profit, whereas a markup is the percentage added to the cost of production to arrive at the selling price.

Profit margin is the revenue remaining after deducting the cost of goods sold (COGS), while markup represents the retail price minus the cost of a product. In terms of calculation, margin equals sales minus COGS, while markup is derived from the selling price subtracted from the cost price.

Let’s dive into the specifics of these terms to help you better understand the difference between profit margin and markup.

Profit margin

Profit margin is a valuable financial metric business professionals use to determine a company’s financial health and stability. It represents the percentage of profit a firm receives from each dollar of revenue it generates after deducting all the expenses associated with producing and selling its products or services.

A higher profit margin means the company generates more profit per dollar of revenue earned, which is generally acceptable, and is operating efficiently and effectively controlling its costs