Calculating Margin and Markup (All)

This information was provided by Claris Corporation on 16 March 1998, and incorporated into Apple Computer's Tech Info Library.
This article has been archived and is no longer updated by Apple.
In accounting, there is a distinction made between "margin" and "markup."

Basically, "markup" is the amount of increase in price over cost. If your cost is $1.00, and the retail price is $1.20, the markup is $0.20, or 20%.

To generate that markup, you can easily find your sale price by adding the amount of the original cost to the amount of the markup with the following formula:

=Cost + (Cost * Markup Percentage)

Because you are providing the percentage markup, you specify the profit margin. In this example, the profit margin is $0.20 (the profit), which is 1/5 (20%) of the the retail price of $1.20.

However, "profit margin" is a fixed percentage profit, based on the final sale price. If your cost is $1.00, and you specify that you must have a final margin of 20%, you must make sure that the cost is 80% of the final price. $1.00 is 80% of 1.25, which retains the 20% profit margin. (For example, if you have a sale price of $1.20 and a cost of $1.00, the profit "margin" is only 17%, because your final sale price is $1.20 and your profit is only $0.20. $0.20/$1.20 = .166 or 17%.)

The formula that you would use to calculate the required sale price, to preserve a margin based on the final cost is:

=Cost/(1-Margin Percentage)

Alternately, the formula you would use to calculate the margin, based on a final cost is:

=1-(Cost/Selling Price)

Last Modified: Feb 18, 2012

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