Margin vs markup: how to set selling prices that make a profit
· 4 min read · SHENZEE Tech
Many shop owners mix up margin and markup, and end up with prices that earn less than they think.
Markup
Markup is profit as a percentage of the cost. Cost Rs 100, sell at Rs 130, markup is 30%.
Margin
Margin is profit as a percentage of the selling price. The same sale: profit Rs 30 on Rs 130, margin is about 23%.
Why it matters
If you want a 30% margin and add 30% to the cost, you will fall short. For a 30% margin on a cost of Rs 100, the price is 100 / (1 - 0.30) = about Rs 143.
A quick method
- Decide your target margin.
- Divide the cost by (1 minus the margin).
- Round to a sensible price, such as Rs 145.
Do not forget the cost can change
Supplier prices move. Re-check prices when a new delivery arrives at a different cost. With batch costing, the system shows the real cost of each batch so you can see when a price needs updating.