Cost Calculations – Markup vs. Margin
Markup and Margin are two ways to look at the same number. The “number” is the additional amount you make over the Cost….or the Profit in a job. “Markup” looks at that profit as a percentage of the Cost, while “Margin” looks at that same profit as a percentage of the total Sell Price.
Two different ways to references the same profit number.
Markup = Adding a percentage of the cost to arrive at a Selling Price.
Example: To calculate Sell Price with a known markup:
To add 35% markup: Cost x 1.35 = Selling Price
(Ex: $2,500 cost x 1.35 = $3,3,75 Sell Price)
To determine Cost from a Sell Price with a known markup:
Known markup of 40%: Sell Price / 1.40 = Cost
(Ex: $6,725 sell price / 1.40 = $4,803.57 Cost)
Margin = The percentage of the Sell Price that is the profit above the cost.
Example: To determine the Margin when you know the Cost and Sell Price:
Subtract the Cost from the Sell Price to determine the Profit.
Then Divide the Profit by the Sell Price
(Ex: $3,375 Sell Price - $2,500 Cost = $875 Profit)
$875 / $3,375 = .2593 or 25.93% Margin
25.93% of the Sell Price was Profit
(Ex: $7,720.59 Sell - $5,250.00 Cost = $2,470.59 Profit)
$2,470.59 / $7,720.59 = 32% Margin
32% of the Sell Price was Profit
To calculate a Sell Price using a known Cost and and desired Margin:
Subtract the desired Margin percentage from “1” to find the “opposite” percent
(Ex: for a .30 Margin, we will use the number .70)
(Ex: for a .285 Margin, we will use .715)
Divide the known cost by this “opposite” number to arrive at the Sell Price
(Ex: $2,500 Cost / .70 = $3,571.43 Sell Price --- This is a 30% Margin)
(Ex: $4,238 Cost / .75 = $5,650.67 Sell Price --- This is a 25% Margin)
(Ex: $8,900 Cost / .82 = $10,853.66 Sell Price --- This is an 18% Margin)
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Last Updated ( Wednesday, 15 April 2009 )
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