•   Many people often confuse or misuse the terms ‘Mark-up’ and ‘Margin’.

While they are similar in that they both define a different measure of profitability, they do have fundamental differences. By understanding these differences you can more accurately define your profit and pricing strategy to align with your business objectives.

Mark-up refers to the price figure added to the cost price to arrive at the sell price. For example 10% ‘mark-up’ on a product would mean it has a sell price 10% greater than its cost price. At 10% ‘mark-up’ an item that cost \$5 would be sold at \$5.50.

Margin is the sell price less the cost. So, using the same product pricing as above, a product sold for \$5.50 – \$5 cost = 50c margin.

In the this example both margin and mark-up are 50c when expressed as a numeric value, but when expressed as a percentage, there was a 10% ‘mark-up’ (on the cost price) and the margin was only 9.1% (50c as a percentage of the sell price of \$5.50).

If your focus is to achieve a desired margin the following calculation should be helpful:

Desired margin ÷ Cost of goods = Mark-up percentage