How this number is made
Margin answers what share of the selling price is profit. Markup answers how much you added on top of cost. Shops often think in markup and report in margin. Using one word for the other prices the product wrong.
- Cost is what you paid for the thing you sold, including freight if freight is part of getting it. Rent is overhead, not this cost, unless you are doing a full net margin.
- Selling price is the price before a sales tax you merely collect, or after it, but not a mix.
- Read both percents. The headline is the margin.
Formula
Profit = price − cost. Margin = profit ÷ price. Markup = profit ÷ cost.
Worked example
Sell at $250 something that cost $160. Profit is $90. Margin is 36%. Markup is 56.3%. A sign that says “56% margin” would be describing a different business.
Questions
Which percent do I put on a quote?
If you build the price from cost, apply markup: price = cost × (1 + markup). If a customer asks what you keep, answer with margin. Do not add the margin percent to cost and call it the price.
Can margin be negative?
Yes. If the cost is above the price, the margin is negative and you lose money on the sale before overhead.