Guide
Markup vs margin: pricing your products
Many shop owners add 30% to the cost and believe they make 30% profit. They do not. Knowing the difference between markup and margin is the first step to pricing that actually pays.
The two numbers
| Markup | Margin | |
|---|---|---|
| What it measures | Profit as a share of cost | Profit as a share of the selling price |
| Formula | (Price − Cost) ÷ Cost | (Price − Cost) ÷ Price |
| Cost US$10, price US$13 | 30% | 23% |
| Cost US$10, price US$15 | 50% | 33% |
| Cost US$10, price US$20 | 100% | 50% |
Pricing from a target margin
If you know the margin you need, work backwards: Price = Cost ÷ (1 − target margin). For a 25% margin on an item that costs US$12, the price is US$12 ÷ 0.75 = US$16. Adding 25% to cost would give only US$15, and a 20% margin.
Common pricing mistakes
- Confusing markup with margin, as above
- Pricing from an old cost after the supplier has put prices up
- Forgetting transport, breakage and spoilage in the cost
- Setting VAT-inclusive prices without allowing for the VAT you must pay over
- Matching a competitor’s price on a line that does not make you money
Keep prices in one place
Revoluno keeps one price per product for the till and the online store, so a price change made once applies everywhere. Product reports then show which lines sell, so you can see where a price change has helped or hurt.
Questions
- What is a good margin for a small shop?
- It varies widely by what you sell: fast-moving groceries often run on thin margins, while accessories and specialist goods carry much more. Compare against your own costs rather than a rule of thumb.
- Is a 50% markup the same as a 50% margin?
- No. A 50% markup is a 33% margin. A 50% margin needs a 100% markup.