Margin Vs Markup
| Document Version | v.1 |
|---|---|
| Document Last Updated | 3/7/24 |
| Software Version Documented | v.9.9.2 |
Margin vs Markup
In this document we’ll cover what the difference is between Markup vs Margin and how to set up formulas specifically for each one in the pricing rules manager screen.
Markup
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Markup refers to the amount added to the cost price of a product or service to determine its selling price.
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It’s usually expressed as a percentage of the cost price.
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For example, if a product costs $50 to produce and you apply a 50% markup, the selling price would be $75. (cost * 1.50)
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If you wanted to create a formula in the system based on a markup % here’s what your formula would look like:
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You can see in the pricing formula section that if I make a new formula for Markup I can assign which cost field I’d like to use as well as which CVal column I’d like to use for my multiplier. You can then test out the formula in the test box to make sure it’s calculating the way you imagine it to be.
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In this example I’m creating this formula within the Pricing rules manager screen under pricing overrides.
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Profit Margin
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Profit margin, on the other hand, is a measure of profitability. It represents the percentage of revenue that exceeds the costs associated with producing and selling goods or services.
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It’s calculated by dividing the net profit by the revenue and then multiplying by 100 to get a percentage.
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For a Profit Margin of 40% (.4) we need to know that 40% (.4) of the selling price is profit. To determine a selling price directly from Profit Margin we would simply do cost/(1 - margin), or in this case, cost/ (1 - .4)
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This is how you’d create the formula for margin within our system:
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In my formula I’ve made it so my cost field is divided against (1 - [CVal10]) to give me a true profit margin calculation. Again you can use any Cval field you’d like in your system and enter in the desired margin %. Remember to use the test box to make sure it’s calculating the way you want it to.
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In this screenshot example I’m calculating a margin of .75 (75%) for my CVal10 value.
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In summary, while markup is the amount added to the cost price to determine the selling price, profit margin is the percentage of revenue that represents the profit after accounting for costs. They are related but distinct concepts used in pricing and financial analysis.