Can anyone explain the difference between markup & margin?

PGM Registered Posts: 1,954
I understand it, but trying to explain the difference to colleagues is proving to be difficult....

And why a markup of 20% gives a margin of about 17% leaves some baffled :mad2:


  • mazzy
    mazzy Registered Posts: 13 Regular contributor ⭐ 😼 ⭐
    I don't think about margin when I'm asked about mark up as It got me confused too - they will be different, I sort of understand why but i don't think you have to compare the 2 against each other!
  • Baggybooks
    Baggybooks Registered Posts: 522
    Mark up is what you add to a figure to produce a new one.

    Margin is the difference between the old and new figures.
  • cs_1988
    cs_1988 Registered Posts: 231 🎆 🐘 🎆
    Hi PGM,

    If a company were to use a mark up of 20% on a product they bought for £150 then the calculation would be - £150 x 20% = £30, and they would sell it for £180.

    If they were selling it £150 with a 20% profit margin, the calcualtion to find the product price would be - £150 x 100/120 = £125, meaning a profit of £25.

    Hope that makes sense.

  • PGM
    PGM Registered Posts: 1,954
    Thanks yes, it does make sense to me. I understand the concept. I've been trying to teach it to colleagues, either I'm a rubbish teacher or they just can't grasp it...

    I find that project workers use mark up and managers/accountants use margin. And the project workers (some of) never will understand why the %'s vary slightly.
  • AdamR
    AdamR Registered Posts: 668
    The percentages vary because markup us is a % of cost, whereas margin is a % of selling price. I think I'm right in saying that a 33.3% cost mark-up is the same as a 25% profit margin, for example. This can be demonstrated if you say that Cost = 100% and that adding a mark-up of 1/3 gives a Selling Price of 133.3% of original cost. If you then multiply that figure by 25%, the margin, you will get a profit of 33.3% of the original cost price, which gets you back to where you started with your mark-up.

    If that example doesn't make things any clearer, don't worry - as you've already realised, it's not the easiest of concepts to justify; and there are probably better ways of showing it than I managed. The key point is what you are taking the percentage of.

    Hope this is of some help
  • Bluewednesday
    Bluewednesday Registered Posts: 1,624
    I always remembered it as mark up on cost (2 k sounds).

    that's the problem sometimes remembering which is which
  • Big Bird
    Big Bird Registered Posts: 62 💫 🐯 💫
    I am confused now

    - on the June 08 PEV paper there is a question a product sells for 25.00 and they want at 30% profit margin What is the target Price?
    The answer is target price is 17.50
    If you do 25 x100/130 = this gives you 19.23 in the assessors report it would appear that many canditates have used this formula

    The answer is 25 - (25x0.03) = 7.50 25-7.50- 17.50

    Can anyone please clarify this as there is only 1 day to go.

  • PGM
    PGM Registered Posts: 1,954
    if the selling price is 25

    and margin 30%

    profit is therefore 30% of the selling price 7.50
    and the cost is the balance 70% 17.50
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