metrics explained

Margin vs Markup: What's the Difference?

When it comes to running a business, there are a lot of different terms and concepts that you need to be aware of. Two of these terms are "margin" and "markup." What do they mean? What's the difference between them? Let's take a closer look.

What is Margin?

Margin is the amount of money that a business makes on a product or service after all of the associated costs have been deducted. In other words, it's the profit that a business makes on a sale. For example, let's say that a business sells a product for $100. The cost of goods sold (COGS) for that product is $60. The business's margin on that product would be $40.

What is Markup?

Markup is the amount of money that a business adds to the cost of a product or service in order to make a profit. In other words, it's the amount by which a business "marks up" the price of a product or service. For example, let's say that a business has a product that costs $100 to produce. The business wants to make a 20% profit on that product. In order to do that, they would need to sell the product for $120 (a 20% markup).

So, What's the Difference?

The difference between margin and markup is that margin is the actual profit that a business makes on a sale while markup is the amount by which a business "marks up" the price of a product or service in order to make a profit.

Why is This Important?

Understanding the difference between margin and markup is important for a few reasons. First, it can help you to understand your own business's financials. If you know your business's margins, you can track how profitable your business is and make decisions accordingly. Second, it can help you to understand how other businesses price their products and services. If you know the markup that a business is using, you can back into their cost structure and make decisions accordingly. Finally, understanding margin and markup can help you to negotiate better deals with suppliers, vendors, and customers.

How Can You Use This Information?

Now that you understand the difference between margin and markup, you can use this information in a few different ways. First, you can use it to track the profitability of your own business. Second, you can use it to understand the pricing of other businesses. Finally, you can use it to negotiate better deals with suppliers, vendors, and customers.

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