MARGIN VS.

MARKUP
Terms to help understand margin and markup
Revenue
- is the income you earn by selling
your products and services. Revenue
is the top line of your income
statement and reflects earnings
before deductions.
Terms to help understand margin and markup

Cost of Goods Sold (COGS)

- include the expenses that go into
making your products and providing
your services. Calculating COGS
could include materials and direct
labor costs.
Terms to help understand margin and markup

Gross profit
- is the revenue left over after you
pay the expenses of making your
products and providing your
services. Gross profit is revenue
minus COGS.
Margin
A margin, or gross margin, shows the
revenue you make after paying the
COGS. To calculate margin, start with
your gross profit (revenue – COGS).
Then, find the percentage of the revenue
that is gross profit.
Margin

𝑷𝒓𝒊𝒄𝒆 − 𝑪𝒐𝒔𝒕
𝑴𝒂𝒓𝒈𝒊𝒏 =
𝑷𝒓𝒊𝒄𝒆
Example
You sell bicycles for ₱200 each. Each bicycle cos
ts you ₱150. Find the margin.
Solve….
The margin is 25%. That means you keep 25% of your total revenue.
Margin measures how much of every dollar in sales you keep after paying
expenses. In the example above, you keep ₱0.25 for every peso you
make. The greater the margin, the greater percentage of revenue you
keep when you make a sale.
Markup
A markup shows how much more your selling
price is than the amount the item costs you.

Using the same example above, solve for

markup.
Markup
Answer…
The markup is 33%. That means you sold the
bicycle for 33% more than the amount you paid
for it. Markup measures how much more you
sell your items for than the amount you pay for
them. The higher the markup, the more
revenue you keep when you make a sale.
Why Margin vs. Markup matters?

Knowing the difference between a markup and a margin helps you set goals.
If you know how much profit you want to make, you can set your prices
accordingly using the margin vs. markup formulas.

If you don’t know your margins and markups, you might not know how to
price a product or service correctly. This could cause you to miss out on
revenue. Or, you might be asking too much, and many potential customers are
not willing to pay your prices.
Markup Margin
15% 13%
20% 16.7%
25% 20%
30% 23%
33.3% 25%
40% 28.6%
43% 30%
50% 33%
75% 42.9%
100% 50%
Seatwork:
(1) If the cost of an item is ₱72 and it has a retail price of ₱89, what is the margin?
(2) For the same example as (1), what is the markup if the price is ₱89 and the cost is ₱72?
(3) A convenience store buys 1-gallon of milk for ₱45 and sells them for ₱62. What is the mar
gin they earn on the milk?
(4) Bev makes hand-braided mats, at a cost of ₱40 per mat, to sell at local craft
shows. She has 30 mats on hand for the next show, and expects to sell them all for a total of
₱1,800. What is Bev’s markup per mat in peso and percentage terms?
(5) Suzie’s Flowers purchases a wide variety of houseplants. One of Suzie's favorites, the large
split leaf philodendron, costs ₱13.50 from the wholesaler and requires an additional ₱1.00 per
plant to take care of and then package prior to sale. Suzie's
normal markup on houseplants is 55%. What would be the retail selling price of a
large split leaf philodendron?
(6) A manufacturer sells an item to its wholesalers for ₱59.95. Wholesalers take a
markup on selling price of 15% and sell to retailers who take a markup on selling price of
45%. How much does this item cost you?
To derive other markup percentages, the calculation is:

Desired margin ÷ Cost of goods = Markup percentage

For example, if you know that the cost of a product is ₱7 and you
want to earn a margin of ₱5 on it, the calculation of the markup per
centage is:
₱5 Margin ÷ ₱7 Cost = 71.4%
If we multiply the ₱7 cost by 1.714, we arrive at a price of ₱12. The
difference between the ₱12 price and the ₱7 cost is the desired
margin of ₱5.