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The difference between a margin and a mark-up

I am often asked what the difference is between a margin and a mark-up. 

They actually refer to the same thing and it really depends from what perspective you are looking at. 

A margin is the difference between the cost of your product and how much you sell it for.  Mark-up is the amount you add to the cost of your product to arrive at a selling price, so the 2 amounts are actually the same.  However, the difference as a percentage are NOT the same.

Let’s look at an example:

You buy a product for $10 and sell it for $14 and therefore your profit is $4.

The profit margin is 28.6%, which is $4 / $14 

The mark-up is 40%, which is $4 / $10.

Margins and mark-ups are two important ratios for any business selling a product.  They define the amount of profit that you make from your product.  You can use these ratios as guides for setting your prices and to compare those of your competitors or industry.  Traditionally, mark-ups are usually expressed in dollars (ie a $20 mark up) and margins are expressed as percentages (ie a gross profit of 20%).

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