What is the Difference Between Margin and Markup?

The main difference between margin and markup lies in their calculations and the information they analyze. Both terms deal with the profit a business makes from sales, but they focus on different aspects:

• Margin: This refers to the amount of money a company makes from its sales before accounting for other expenses such as operating costs, taxes, and interest. In other words, margin is the profit made from sales only. It is calculated by subtracting the cost of goods sold (COGS) from the sales revenue.
• Markup: This refers to the percentage difference between the actual cost of a product or service and its selling price. In other words, markup is the profit made when the cost price is marked up to the selling price.

Here are some key points to remember:

1. Margin is expressed as a percentage of the sales revenue, while markup is expressed as a percentage of the costs.
2. Margin shows profit as it relates to a product's sales price or revenue generated, while markup shows profit as it relates to costs.
3. A product's markup percentage is always larger than its margin percentage, even though they refer to the same amount of money.

To avoid confusion and errors in accounting and sales, it is essential to understand the differences between margin and markup and use the appropriate term in the right context.

Comparative Table: Margin vs Markup

The difference between margin and markup lies in their definitions, formulas, and how they relate to pricing and profitability. Here's a table summarizing the key differences:

In summary, margin and markup are both used to measure profitability, but they are calculated differently and represent different aspects of a product's sales price. Margin is the percentage of profit relative to the selling price, while markup is the percentage of profit relative to the cost of goods sold.