Price setting is often a place of mass confusion for small business owners.  I know for myself it is hard to find the price that optimizes profits while maintaining my competitive advantage. Understanding the difference between margin and markup on price increases is a must for properly achieving your profit goals.

Markup vs Margin Defined

• Markup percentage – the percentage difference between the product/service cost and the selling price.

Markup = (Selling Price – Cost) / Cost

Service Cost $75

Selling Price $100

Markup = (100-75)/75 = 33.33%

• Margin percentage – the percentage difference between the product/service selling price and the profit.

Margin = (Selling Price – Cost) / Selling Price

Selling Price $100

Profit $25

Margin = (100-75)/100 = 25%

Since the difference between the two concepts has always caused me trouble please download the markup vs margin excel template to easily calculate both percentages by only plugging in the selling price and cost.

Markup vs Margin Quick Reference Chart