Margin Calculator

How to Calculate Margin and Markup

Understanding margin and markup is crucial for businesses to price their products effectively and ensure profitability. Here's a comprehensive guide on how to calculate and interpret these important financial metrics.

Margin and Markup Formulas

The key formulas for margin and markup calculations are:

Margin Formula:

$$\text{Margin (%)} = \frac{\text{Selling Price} - \text{Cost}}{\text{Selling Price}} \times 100$$

Markup Formula:

$$\text{Markup (%)} = \frac{\text{Selling Price} - \text{Cost}}{\text{Cost}} \times 100$$

Where:

• Selling Price: The price at which a product or service is sold
• Cost: The cost to produce or acquire the product or service

Calculation Steps

1. Determine the cost of the product or service.
2. Determine the selling price of the product or service.
3. Calculate the margin using the margin formula.
4. Calculate the markup using the markup formula.

Example Calculation

Let's calculate the margin and markup for a product with the following details:

• Cost: $80
• Selling Price: $100

Step 1: Calculate Margin

$$\text{Margin (%)} = \frac{100 - 80}{100} \times 100 = 20\%$$

Step 2: Calculate Markup

$$\text{Markup (%)} = \frac{100 - 80}{80} \times 100 = 25\%$$

Therefore, for this product:

• The margin is 20%
• The markup is 25%

Visual Representation

This diagram illustrates the relationship between cost, selling price, and margin. The blue section represents the margin, while the dark blue section represents the cost.