THE DIFFERENCE BETWEEN MARKUP AND MARGIN
One of the biggest decisions of your business is determining the right price for your product. The pricing has to be competitive and at the same time, high enough to turn a reasonable profit. Achieving the right balance between these two can be really hard. Calculating your markup and margin are highly essential in such cases where the two numbers are used to estimate the sale price and cost of the goods. While these two seem similar, there are some important differences between the two.
Markup is the amount that you charge above the cost of goods.
Margin is the difference between the cost of goods and the sales price.
Even if the distinction is subtle, it is rather important, particularly where formulas are necessary to make crucial business decisions.
Calculating Markup vs. Margin can be challenging, but the formulas are relatively simple. It means you can apply these to your pricing strategy once you know how to use them.
Here is a simple example:
The cost price of a product is $800, and the sale price is $1,000. Now to calculate the margin, you have to subtract the cost price of $800 from the selling price of $1,000. Thereafter, to evaluate the markup, simply divide the $200 margin by the cost of the product, which is $800. The result is 25%.
It is easy to mistake one for the other but ideally, both of these produce different results.
Which to use where?
Markup is used when you determine the price of a product, while margin helps you understand how much to make on each of your purchases. This way, even after all the other expenses have been considered, you will remain profitable. The annual performance can also be calculated using margins, thus allowing you to visualise the various costs associated with the sourcing and selling of the product.
OVERSEE POS solutions
One of the integral parts of developing an effective pricing strategy is performance measurement and a solid understanding of markup and margins. Another aspect that impacts your business performance is the POS platform you choose to manage your operational and billing needs. Providing cutting-edge solutions our cloud-based POS software is feature-rich and helps you understand your existing pricing structure to evolve newer ones. All our processes are designed to ensure 100% customer satisfaction.
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