Markup

In plain words

Markup is how much a price sits above a cost, as a share of the cost. A product bought for $10 and sold for $25 has a markup of 150%.

Margin describes the same gap as a share of the price, which makes it 60% for that product. The two are easy to confuse, and the confusion is expensive: a discount is a share of price, so it has to be held against margin, never against markup.

Formula

• Markup = (price − cost) ÷ cost
• Margin = (price − cost) ÷ price
• Margin = markup ÷ (1 + markup)

Worked example

The coffee bag sells for $40.00 and costs $12.00. Its markup on that cost is 233.3%, and its gross margin is 70.0%: the same gap, measured against two different bases.

Neither is what the order keeps. With fulfilment, the label, fees and the refund reserve counted, the engine puts its contribution margin at 38.4%.

Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.

A 100% markup is not a 100% margin

Doubling the cost gives a 100% markup and a 50% margin. A margin can never reach 100% while the product costs anything. A brand that reads its markup as margin will think a 40% discount leaves plenty, when it may leave nothing.

Using it

Use markup when you set a price from a cost, the way a buyer or a wholesaler does. Switch to margin as soon as the question involves the selling price: discounts, fees charged on revenue, and ad spend. And remember both are computed on the product cost alone, before any cost of getting the order out.