Optimize your pricing strategy. Calculate Profit Margins, set the correct Markup, and determine the ideal Selling Price for your products or services.
While often used interchangeably, Margin and Markup are two very different accounting terms. Confusing them can lead to pricing errors that hurt your bottom line.
Margin is the percentage of the selling price that is profit. If you sell a product for $100 and it cost you $70 to make, your profit is $30, and your margin is 30%.
Formula: (Price - Cost) / Price * 100
Markup is the percentage added to the cost to reach the selling price. Using the same example ($100 price, $70 cost), your profit is $30, but your markup is 42.9%.
Formula: (Price - Cost) / Cost * 100
Use Margin when analyzing overall business profitability. You can never have a margin of 100% or more (unless your cost is 0).
Use Markup when setting individual product prices. You can have markups of 100%, 200%, or more.
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