Markup and Margin Explained

The amount added to the cost price of goods to cover overhead and profit.

An amount by which a thing is won or falls short.

Markup is a common term used to describe the difference between selling price and cost of a product or service.

Markup = Selling Price (SP) – Cost (C)

Markup Example
A new cell phone sells for $600 and it costs the seller $325. The markup is $275.

Markup Percent
M%cost is the Sales Price (SP) divided by the cost (C) of a product x 100 = (SP/C) x 100

Example of M%cost:
A new cell phone sells for $600 and the cost to the seller is $325. The markup is $275.

M%cost = $600/$325 x 100 = 184.62%

Once the markup percent is calculated, then you just multiply the cost of your products by the markup percent and you instantly know the selling price.

SP = C x M%cost

Margin is the selling price of the product minus its cost. Gross Profit Margin is a financial metric used to assess a company’s financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold.
Gross Profit Margin is calculated as:

GPM= (1-C/SP) x 100

Example of Margin
A new cell phone sells for $600 and the cost to the seller is $325.

Gross Profit margin = (1 – C/SP) x 100 = (1 – 325/600) x 100 = 45.83%

Once the Gross Profit percentage is known you just multiply it by the selling price to determine the amount of gross profit you will make for the product

SP = C x M%cost

Be careful when using Markup percent and Margin:

  • Markup percent determines sale price and is based on cost.
  • Margin determines gross profit and is based on sales.
  • If you mix the two up, you will be miscalculating your sales prices and/or gross profits.