System Margin, Markup

Margin and markup are two different concepts used to calculate profitability, and they yield different results. 

Margin: Margin is a measure of profitability as a percentage of the selling price. It represents the portion of the selling price that is profit.

Markup: Markup is a measure of profitability as a percentage of the cost price. It represents the amount added to the cost to determine the selling price.

Let’s use $100 for an example.

For a 10% margin, the selling price would be approximately $111.11.

For a 10% markup, the selling price would be $110.

Why use gross margin instead of markup?

Additionally, using margin to set your prices makes it easier to predict profitability. Using markup, you cannot target the bottom line effectively because it does not include all the costs associated with making that product.

Is 100% markup the same as 50% margin?

To arrive at a 40% margin, the markup percentage is 66.7% To arrive at a 50% margin, the markup percentage is 100.0%