Margin vs. Markup: What's the Difference?
Although often used interchangeably, margin and markup are two very different accounting terms. Mistaking them can lead to setting prices too low and losing money.
- Margin (Gross Margin): The percentage of the selling price that is profit.
Formula: (Price - Cost) / Price - Markup: The percentage increase added to the cost to get the selling price.
Formula: (Price - Cost) / Cost
For example, if you buy a product for $100 and sell it for $150, your profit is $50. Your Markup is 50%, but your Margin is only 33.3%.