Markup vs Margin: Difference and Comparison

Markup and Margin are both accounting terms and are related to the selling price of a product. Both these terms can be somewhat confusing. However, if used interchangeably can cause a lot of problems with the price-setting, leading to low profits and lost sales.

Hence, it is necessary to differentiate between them as both these terms are different from each other in many ways. 

Key Takeaways

  1. Markup refers to the percentage increase in the selling price of a product over its cost, while margin represents the percentage difference between the selling price and the cost price.
  2. A high markup indicates a larger profit potential for a business, whereas a high margin shows a higher actual profit realized.
  3. To accurately determine profitability, businesses should consider markup and margin when pricing their products or services.

Markup vs Margin 

Markup is the amount added to the cost of a product or service to arrive at the selling price. It is expressed as a percentage of the cost. Margin is the profit earned on a product or service after deducting all costs and expenses. It is expressed as a percentage of the selling price.

Markup vs Margin
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To determine the selling price of a product cost of the product is increased with the help of an amount known as Markup.

Markup is calculated by finding the difference between the Selling price and the Cost of goods sold and then dividing the difference by the Selling Price (SP-Cost of goods sold/SP).

Markup is actually from the perspective of the buyer, and it should always be higher than Margin. Markup is calculated based on cost. It acts as a Cost Multiplier.  

The margin represents the difference between sales and the cost of goods sold. Margin is calculated by finding the difference between the Selling price and the Cost of goods sold and then dividing it by the Cost of goods sold (SP-Cost of goods sold/Cost of goods sold).

Margin is actually from the perspective of a seller and hence should always be lower than Markup. Margin is calculated based on price or revenue. It represents the profit earned on total sales.

Comparison Table

Parameters of ComparisonMarkup  Margin  
 Meaning   
To determine the selling price of a product cost of the product is increased with the help of an amount known as Markup.  
The Margin represents the profit earned on the total sales. 
Formula   (Selling Price- Cost of the goods sold)/ SP (Selling Price- Cost of the goods sold)/Cost of the goods sold.  
Basis of calculation  Markup is calculated based on cost.  Margin is calculated based on revenue or price. 
 Perspective   Markup is actually from the perspective of a buyer. Margin is actually from the perspective of a seller.  
 Calculation   Since Markup is from the perspective of the buyer, it shall always be higher than Margin.  Since Margin is from the perspective of the seller, it shall always be less than Markup. 
 Action   Acts as a Cost-multiplier. Represents the profit earned on total sales. 

What is Markup? 

To determine the selling price of a product cost of the product is increased with the help of an amount known as Markup.

Markup is calculated by finding the difference between the Selling price and the Cost of goods sold and then dividing the difference by the Selling Price (SP-Cost of goods sold/SP). 

Markup is actually from the perspective of the buyer and hence should always be higher than Margin. Markup is calculated based on cost. It acts as a Cost Multiplier. 

The purpose of markup is to ensure that revenue is generated from every sale. Markup is good for understanding business and makes the user aware of the costs.

markup

What is Margin? 

The Margin represents the difference between sales and the cost of goods sold. Margin is calculated by finding the difference between the Selling price and the Cost of goods sold and then dividing it by the Cost of goods sold (SP-Cost of goods sold/Cost of goods sold). 

Margin is actually from the perspective of a seller and hence should always be lower than Markup. Margin is calculated based on price or revenue. It represents the profit earned on total sales. 

Margin usage increases as the business ages. Profit margins determine the actual profit made on the sale.  

margin

Main Differences Between Markup and Margin 

  1. To determine the selling price of a product cost of the product is increased with the help of an amount known as Markup, whereas Margin represents the difference between sales and cost of goods sold. 
  2. Markup is calculated by finding the difference between the Selling price and the Cost of goods sold and then dividing the difference by the Selling Price (SP-Cost of goods sold/SP), whereas, Margin is calculated by finding the difference between the Selling price and the Cost of goods sold and then dividing it by the Cost of goods sold (SP-Cost of goods sold/Cost of goods sold). 
  3. Markup is actually from the perspective of the buyer, whereas, Margin is actually from the perspective of a seller. 
  4. Since Markup is from the perspective of the buyer, it shall always be higher than Margin. On the other hand, since Margin is from the perspective of the seller, it shall always be less than Markup. 
  5. Markup is calculated based on cost, whereas, Margin is calculated based on price or revenue. 
  6. Markup acts as a Cost Multiplier, whereas, Margin represents the profit earned on total sales. 
  7. The purpose of markup is to ensure that revenue is generated from every sale. On the other hand, Profit margins determine the actual profit made on the sale.  
Difference Between Markup and Margin

References 

  1. https://www.sciencedirect.com/science/article/abs/pii/S0360835212002252 
  2. https://www.sciencedirect.com/science/article/abs/pii/S1574007201100241 

Last Updated : 08 August, 2023

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24 thoughts on “Markup vs Margin: Difference and Comparison”

  1. The comparisons and examples offered in this article help in understanding the importance of markup and margin in pricing strategies effectively.

    1. This comprehensive explanation of markup and margin is an excellent resource for businesses to make informed decisions in setting prices.

    2. I agree, this article simplifies the concepts of markup and margin, making it less perplexing for businesses to apply in their pricing decisions.

  2. Avatar of Matthews Nathan
    Matthews Nathan

    The article emphasizes the significance of considering both markup and margin in pricing strategies, offering valuable insights for businesses to enhance their profitability.

    1. Avatar of Sabrina Griffiths
      Sabrina Griffiths

      I completely agree. This guide serves as an essential reference for businesses seeking to improve their pricing techniques.

  3. Great explanation on the difference between markup and margin. The comparison table was especially insightful.

    1. I appreciate the clear examples of how both markup and margin are calculated. It really helps in understanding the concept better.

    2. Avatar of Rachel Griffiths
      Rachel Griffiths

      I totally agree. This guide is very useful for businesses to understand how to price their products accurately.

  4. The examples illustrating how to calculate both markup and margin are very informative. This article is beneficial for businesses looking to refine their pricing approaches.

    1. Avatar of Clarke Darren
      Clarke Darren

      This guide is particularly helpful for businesses to understand the distinct roles of markup and margin in their pricing strategies.

    2. I couldn’t agree more. This article presents a clear and concise explanation of markup and margin, making it easier to comprehend.

  5. The distinction between markup and margin is crucial for businesses to make informed pricing decisions. This post offers detailed insights into their differences.

    1. Absolutely, this article provides an excellent understanding of the importance of considering both markup and margin for pricing strategies.

  6. This post effectively highlights why both markup and margin are crucial for businesses to ensure profitability through accurate pricing.

    1. Avatar of Anderson Shannon
      Anderson Shannon

      Understanding the relationship between markup and margin is essential for businesses, and this article delivers valuable insights.

    2. The detailed comparison and examples provided here are beneficial for businesses to gauge their pricing strategies effectively.

  7. The detailed breakdown of the key differences between markup and margin helps businesses in avoiding pricing pitfalls and optimizing their profitability.

    1. Avatar of Turner Lizzie
      Turner Lizzie

      I couldn’t agree more. This guide is an invaluable resource for businesses to refine their pricing strategies.

  8. This post provides a clear understanding of the concepts of markup and margin, which is vital for businesses to develop effective pricing structures.

  9. Understanding the distinct purposes of markup and margin is crucial for businesses, and this article does an excellent job of clarifying these concepts.

    1. Absolutely, businesses can leverage the insights from this article to make more informed pricing decisions and maximize their profitability.

  10. Learning how markup and margin complement each other in the pricing strategy is essential for any business. This post provides a comprehensive guide on these concepts.

    1. I agree, the examples and explanations offered here are very helpful for businesses trying to optimize their pricing models.

    2. This article makes it easier to understand how markup and margin are interconnected and how they impact profitability.

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