The difference between margin and markup.

Market relations seem complex and confusing to any person who does not have specialized education and experience. How, for example, is a margin different from a mark-up? It would seem that both the first and second concepts denote the profit that a business entity receives. In fact, there is a difference, and it is very significant: let's try to figure it out.

Definition

Margin - the ratio of profit to the market price of a product, a measure of a company's earnings after deducting expenses, which is measured as a percentage. Its limiting value cannot be equal to 100%, which is due to the peculiarities of the calculation. This value is estimated for a relative assessment of the company's performance.

Margin - the difference between the cost of a product and the price at which it is sold to the end customer, designed to cover the costs of its production, delivery, storage and sale. The marginal amount of the markup can be limited by administrative methods, but in developed economies it is formed by the market method.

Comparison

To differentiate concepts requires a clear understanding. Imagine a situation in which a product purchased for 100 rubles is sold for 150. In this case:

Margin = (150-100) / 150 = 0.33 (33.3%)

Margin = (150-100) / 100 = 0.5 (50%)

Thus, the margin is the amount of income received by the company minus expenses, and the margin is just a markup, added to the cost of the product. The marginal amount of the margin is practically unlimited, and the margin under no circumstances can be 100% or higher. There are differences in the basis for calculating the indicated values. The basis for determining the margin is the company's income, the determination of revenue is the margin.

Conclusions TheDifference.ru

  1. Essence. The margin shows how much income will remain after deducting expenses, the markup is the markup added to the purchase price of the product.
  2. Limit volume. The margin cannot be 100%, while the markup can.
  3. Calculation base. The margin is calculated based on the company's income, the markup is based on the cost price.
  4. Ratio. The higher the markup, the higher the margin, but the second indicator is always lower than the first.
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