Mark up and Margin - help please

topcat

Hi all!

been trying to get to grips with mark up and margins and for some reason i do not understand it at all

has anyone got a VERY easy explanation of what i need to do

any help would be great


thanks in advanced

coojee

topcat wrote: »

Hi all!

been trying to get to grips with mark up and margins and for some reason i do not understand it at all

has anyone got a VERY easy explanation of what i need to do

any help would be great


thanks in advanced

The way I remember which is which is that mark "up" marks the price "upwards" ie it tells you how much you're going to add on to cost to arrive at the sales price so it's going "up". Then I know that margin is the other one.
So if mark up is 40% and cost is £100 then you add 40% of £100 to the cost price (£100) to get sales price of £140
The margin on that is the other one, ie gross profit/sales = £40/£140 = 28.5% (ish)

Nps

Does visualisation help? If so, try this.

You have two pieces of paper in front of you. Both represent 100%.

The first piece of paper has a ruled margin down the side. The space to the left of the margin is your profit and the space to the right of it is your cost. Together, they both make up the 100% of the paper. Hence with a 25% profit margin, 25% is your profit and the remaining 75% is the cost. So a selling price of £200 with a profit margin of 25% means the cost is £150 and the profit is £50. (£200/100% x 75 is the cost, and £200/100% x 25 is the profit). If the profit margin increases, the space to the left of your margin increases, hence the space to the right (the cost) must decrease accordingly.

The other piece of paper however has no margin, so the whole 100% of paper in front of you only represents the cost. A mark up of 25% means you have a total of 125% as the 25% mark up is extra. Hence a selling cost of £200 represents 125%, so your cost is £200/125% x 100 to get the cost, and £200/125% x 25 to get the profit.

Does that make sense? Think of it as your paper with the margin includes everything, whereas if there is no margin the profit must be extra.

topcat

thank you both i have finally got it :thumbup1:

Bluewednesday

Nps1976 wrote: »

Does visualisation help? If so, try this.

You have two pieces of paper in front of you. Both represent 100%.

The first piece of paper has a ruled margin down the side. The space to the left of the margin is your profit and the space to the right of it is your cost. Together, they both make up the 100% of the paper. Hence with a 25% profit margin, 25% is your profit and the remaining 75% is the cost. So a selling price of £200 with a profit margin of 25% means the cost is £150 and the profit is £50. (£200/100% x 75 is the cost, and £200/100% x 25 is the profit). If the profit margin increases, the space to the left of your margin increases, hence the space to the right (the cost) must decrease accordingly.

The other piece of paper however has no margin, so the whole 100% of paper in front of you only represents the cost. A mark up of 25% means you have a total of 125% as the 25% mark up is extra. Hence a selling cost of £200 represents 125%, so your cost is £200/125% x 100 to get the cost, and £200/125% x 25 to get the profit.

Does that make sense? Think of it as your paper with the margin includes everything, whereas if there is no margin the profit must be extra.

What a brilliant explanation!

Nps

Thank you - wasn't sure if anyone would understand the strange ramblings of my thought processes! Always worked for me though!

PS I see you are also in Milton Keynes - I don't suppose you will be in a position to hire a trainee accountant in about 6 months time?? :001_smile:

billdoor

Nps1976 - that's absolutely brilliant.:laugh::thumbup:

Bluewednesday

Nps1976 wrote: »

PS I see you are also in Milton Keynes - I don't suppose you will be in a position to hire a trainee accountant in about 6 months time?? :001_smile:

Ive sent you a pm