Markup vs Margin

Markup refers to the amount or percentage added to the cost price of a product or service to determine its selling price.

Purpose: Markup is typically used by businesses to cover various costs (e.g., overhead, operating expenses, and desired profit margin) and generate a profit when selling goods or services.

Formula: Markup = (Selling Price - Cost Price) / Cost Price * 100%

Example: If a product costs £50 to produce, and a business wants a 40% markup, it will be sold for £70 (£50 + 40% of £50).

Margin is the percentage of profit a business makes on the selling price of a product after accounting for the cost of acquiring it.

Purpose: Margin helps assess profitability and is a key metric for evaluating the financial health of a business. Higher margins often indicate greater profitability.

Formula: Margin = (Selling Price - Cost Price) / Selling Price * 100%

Example: If a product is sold for £70 and costs £50 to produce, the margin is 30% (£20 profit divided by £70 selling price).