Markup and Margin: what is the clear Difference That Impacts Your Profit
Blog Markup and Margin: what is the clear Difference That Impacts Your Profit Rio Akram Miiro June 1, 2025 Markup and Margin are two common ways to measure profit, but they are often confused. Both use the same numbers—revenue and cost—but they show different results. Markup looks at how much you increase a product’s cost to set its price. Margin looks at how much profit you keep from each sale after covering the cost. Knowing the difference helps you price products correctly, avoid losses, and understand your business performance. If you set prices using margin instead of markup—or the other way around—you could lose sales or miss profit goals. This short guide will explain both terms clearly, show how to use them, and help you avoid common pricing mistakes. What Is Margin? The margin shows how much profit a company keeps from each sale after covering the cost of the product. It is calculated by subtracting the cost of goods sold (COGS) from the sales price and then dividing that number by the sales price. Margin = (Sales – COGS) ÷ Sales For example, if a product sells for $100 and costs $70 to produce, the margin is $30. To get the margin percentage, divide $30 by $100. The result is 30%. This means 30% of the sales price is profit. Margin helps businesses understand how efficiently they are turning sales into profit. It is a useful number for tracking profitability over time or comparing products and departments. What Is Markup? Markup shows how much more a product is sold for than it costs to make. It is calculated by subtracting the cost from the sales price and then dividing that number by the cost. Markup = (Sales – COGS) ÷ COGS Using the same example: a product sells for $100 and costs $70. The markup is $30. To get the markup percentage, divide $30 by $70. The result is 42.9%. This means the product is priced 42.9% above its cost. Markup helps businesses set prices. It shows how much is added to the cost to reach the selling price. A higher markup means more money is made on each item sold. Side-by-Side Comparison Table Margin and markup use the same numbers but answer different questions. The margin shows profit as a share of sales. Markup shows how much was added to the cost. Use this table to see how they compare: Feature Margin Markup Formula (Sales – Cost) ÷ Sales (Sales – Cost) ÷ Cost Based On Sales price Cost of goods Focus Profit from revenue Profit over cost Use Case Track profitability Set selling price Example Result 30% (on a $100 sale, $70 cost) 42.9% (on a $70 cost, $100 sale) Knowing both helps avoid confusion and supports smarter pricing decisions. Why Confusing These Can Cost You Confusing margin with markup can lead to wrong prices and lost profit. If you set prices using a 30% markup thinking it gives you a 30% margin, your actual margin will be lower. You may not cover your costs or hit your profit target. For example, if a product costs $100 and you apply a 30% markup, the price becomes $130. Your profit is $30, but the margin is only 23%—not 30%. That gap affects how much profit your business keeps. Using the wrong number can also confuse reports, mislead your team, and hurt financial decisions. Clear pricing starts with knowing the difference. When to Use Markup vs. Margin Use markup when setting prices. It helps you decide how much to charge based on the cost of a product. Markup ensures you cover your costs and make a profit on each sale. Use margin when reviewing performance. It shows how much profit you keep from sales. Margin helps track overall business health, compare product lines, and set revenue goals. Retailers often use markup for pricing. Managers and investors use margin to measure profit. Both are useful, but they serve different purposes. Knowing when to use each helps you make better business decisions. Common Questions Answered Can margin and markup be the same? Only if the cost is zero, which is not realistic. Margin and markup use the same numbers but give different results. Is margin better than markup? Not better—just different. Use markup to set prices. Use margin to check profit. What’s a good margin or markup? It depends on your industry. Some products have low margins but sell in high volume. Others need a higher margin to cover lower sales. Why do these numbers matter? They help you price products right, cover costs, and keep your business profitable. What if I switch the two by mistake? You might underprice or overprice your product. That could lead to lost profit or lost sales. Always check your numbers. Conclusion Markup and margin measure profit in different ways. Markup shows how much you add to the cost. The margin shows how much you keep from the sale. Both use the same numbers but serve different goals. Use markup to set prices. Use margin to check profit. Mixing them up can lead to pricing errors and lost income. Knowing the difference helps you make smarter decisions, set better prices, and track your business performance with confidence. Tags : Blog Share this article : Related Articles and News edit post Inventory Management What Is UOM Inventory? A Clear Answer with Real Examples Blog What Is UOM Inventory? A Clear Answer with Real Examples Rio… edit post Inventory Management Omnichannel Inventory Management for Retailers: 5 Steps to Eliminate Stock Chaos Inventory Management Omnichannel Inventory Management for Retailers: 5 Steps to Eliminate Stock… edit post Inventory Management AI in Inventory Management: Use Cases, Benefits, and Quick Wins for Businesses Blog AI in Inventory Management: Use Cases, Benefits, and Quick Wins for…
Inventory vs Supplies: Key Differences Explained Clearly
Inventory Management, Insight Inventory vs Supplies: Key Differences Explained Clearly Rio Akram Miiro January 28, 2025 Although inventory and Supplies may seem interchangeable, they serve distinct roles in your business. Understanding the difference is important for smooth operations, accurate accounting, and effective resource management. Supplies keep your business running daily, while inventory directly contributes to your products or services. Knowing how to categorize and manage these items ensures your business stays organized, profitable, and prepared for growth. What is Inventory? Inventory includes the products your business purchases or produces to sell to customers. This can range from raw materials to finished goods. For example, if you own a candle business, the wax, wicks, and fragrances used to create the candles are inventory. Finished candles ready for sale are also inventory. Whether you manufacture products or resell them, inventory refers to anything directly tied to what your business offers to customers. It’s a big part of your business’s operations and is typically classified as a short-term asset on your balance sheet. What are Supplies? Supplies are the everyday items your business needs to operate but don’t become part of the products you sell. These can include paper, packing materials, ink, or toner. For instance, if you run a candle business, the boxes and bubble wrap used to ship your candles are supplies—not inventory. Supplies help keep your business running smoothly, ensuring you can package, ship, and maintain daily operations. Unlike inventory, supplies are usually classified as business expenses rather than assets. Key Differences Between Inventory and Supplies Inventory and supplies serve different purposes in your business. Inventory includes items you sell to customers, such as raw materials, work-in-process goods, or finished products. These are considered short-term assets and directly contribute to your revenue. Supplies, on the other hand, are tools and materials your business needs to operate. They don’t appear in the products you sell but are required for packaging, shipping, or daily operations. Supplies are recorded as business expenses. In short, inventory is tied to what you sell, while supplies help you run your business effectively. Both are crucial but managed and tracked differently for financial accuracy and operational efficiency. Managing Inventory and Supplies Effectively managing inventory and supplies is vital to keep your business running smoothly and profitably. While both require careful tracking, their management strategies differ. Inventory needs precise demand forecasting to avoid overstocking or running out of stock. This is especially important for items prone to expiration or obsolescence. Supplies, however, can often be purchased in bulk, as they are typically non-perishable and consistently used. An inventory management system can simplify tracking both categories. A good system helps you monitor quantities, organize products, and forecast needs. By managing inventory and supplies well, you’ll save time, reduce waste, and maintain consistent operations. Conclusion Knowing the difference between inventory and supplies makes running your business a lot easier. Inventory is what you sell, while supplies are what you use to keep things running smoothly. Both are important, but they need to be managed differently. A good system for tracking and organizing both will save time, avoid confusion, and keep your business on track. This simple step can make a big difference in keeping your operations smooth and your finances accurate. ARM POS Best for Small Businesses Stock Expenses Reports No Credit card Required Get 7 daysTrial Tags : Inventory Management, Insight Share this article : Related Articles and News edit post Blog Inventory vs Stock: Key Differences Every Retailer Must Know Blog, Inventory Management Inventory vs Stock: Key Differences Every Retailer Must Know… edit post Inventory Management Inventory Forecasting Made Simple: Methods, Formulas, and Benefits Inventory Management Inventory Forecasting Made Simple: Methods, Formulas, and Benefits Rio Akram… edit post Inventory Management Inventory Holding Cost Explained: Formula, Examples, and Best Practice Blog Inventory Holding Cost Explained: Formula, Examples, and Best Practice Rio Akram…