Markup vs margin comes down to what you divide the same profit by. Markup is profit divided by cost; margin is profit divided by the selling price. A product that costs UGX 8,000 and sells for UGX 10,000 earns UGX 2,000, which is a 25% markup and a 20% margin.
Mixing them up prices goods too low: add 20% to cost and you keep 16.7% of each sale, not 20%. This guide gives both conversions, a table to copy into a spreadsheet, and prices worked in Ugandan shillings, VAT included.
Markup and margin side by side
Both use the same two numbers, cost and selling price, and the same profit between them. Only the bottom of the fraction changes, so markup is always the bigger percentage.
| Markup | Margin | |
|---|---|---|
| Formula | (price − cost) ÷ cost | (price − cost) ÷ price |
| Divides by | What the goods cost you | What the customer pays |
| Answers | How much do I add to cost? | How much of each sale do I keep? |
| Best used for | Turning a cost into a price | Targets, reports and comparing products |
| Cost UGX 70,000, price UGX 100,000 | 42.9% | 30% |
| Can it pass 100%? | Yes | No |
In the example, UGX 30,000 of profit is 42.9% of the UGX 70,000 cost but 30% of the UGX 100,000 price. The Corporate Finance Institute defines markup the same way: the gap between selling price and cost, measured against cost.
Cost here is what the goods cost you to buy and bring in. Once they sell, your accounts call it cost of goods sold.
How to convert markup to margin, and margin to markup
Two formulas turn one into the other, and a third turns a cost into a price. Work in decimals, so 25% is 0.25.
- Margin = markup ÷ (1 + markup). A 25% markup is 0.25 ÷ 1.25 = 0.20, a 20% margin.
- Markup = margin ÷ (1 − margin). A 40% margin needs 0.40 ÷ 0.60 = 0.667, a 66.7% markup.
- Price = cost ÷ (1 − margin). For a 40% margin on a UGX 6,000 cost, the price is 6,000 ÷ 0.60 = UGX 10,000.
The third formula is the one to use at the shelf. Divide the cost by one minus the margin you want, and the margin comes out exact.
The same arithmetic catches the common slip: a 30% markup is not a 30% margin. Add 30% to a UGX 100,000 cost and the price is UGX 130,000, so the UGX 30,000 profit is a 23.1% margin.
Markup and margin conversion table
Find the margin you want in the first column. The second gives the markup that delivers it, and the third the number to multiply your cost by.
| Target margin | Markup needed | Multiply cost by |
|---|---|---|
| 5% | 5.3% | 1.053 |
| 10% | 11.1% | 1.111 |
| 15% | 17.6% | 1.176 |
| 20% | 25.0% | 1.250 |
| 25% | 33.3% | 1.333 |
| 30% | 42.9% | 1.429 |
| 35% | 53.8% | 1.538 |
| 40% | 66.7% | 1.667 |
| 45% | 81.8% | 1.818 |
| 50% | 100% | 2.000 |
| 60% | 150% | 2.500 |
| 75% | 300% | 4.000 |
Going the other way, start from the markup you add today and read off the margin you really keep.
| Markup | Margin |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 30% | 23.1% |
| 40% | 28.6% |
| 50% | 33.3% |
| 60% | 37.5% |
| 75% | 42.9% |
| 100% | 50.0% |
| 150% | 60.0% |
| 200% | 66.7% |
The spreadsheet formulas
Type the margin or markup in cell A2 as a percentage and the cost in B2. Copy each formula below into its own column, then drag it down for every product.
| To get | Formula |
|---|---|
| Markup, from the margin in A2 | =A2/(1-A2) |
| Price multiplier, from the margin in A2 | =1/(1-A2) |
| Margin, from the markup in A2 | =A2/(1+A2) |
| Price, from the cost in B2 and the margin in A2 | =B2/(1-A2) |
How to price a product for a target margin, worked in UGX
Start from the landed cost of one selling unit, then divide by one minus your target margin. The mistake to avoid is multiplying the cost by one plus the margin.
For example, a minimarket in Kampala buys a carton of 24 bottles of juice for UGX 18,000. Its share of the transport from the wholesaler is UGX 1,200 a carton. The figures are illustrative.
| Step | Calculation | Result |
|---|---|---|
| Landed cost of the carton | 18,000 + 1,200 | 19,200 |
| Cost of one bottle | 19,200 ÷ 24 | 800 |
| Price for a 20% margin | 800 ÷ (1 − 0.20) | 1,000 |
| Check the margin | (1,000 − 800) ÷ 1,000 | 20% |
| The usual mistake | 800 × 1.20 | 960 |
| Margin the mistake gives | (960 − 800) ÷ 960 | 16.7% |
At UGX 960 the shop makes UGX 160 a bottle instead of 200. It gives away a fifth of the profit it planned on every bottle it sells.
Cost covers everything it took to get the goods onto your shelf. That is the price, transport, loading and any import duty, less supplier discounts. Shop rent and staff wages stay out as expenses, as cost of goods sold explains.
Price per selling unit, not per carton. If you buy by the carton and sell by the piece, divide the landed cost by the pieces in it first. Our guide to units of measure covers those conversions.
Work out margin on the price before VAT
VAT belongs to the tax authority, so leave it out of both price and cost when you work out margin. Uganda charges VAT at 18% on most goods. The registration threshold is UGX 150 million of turnover a year (PwC, Uganda other taxes).
For example, if the minimarket is registered for VAT, the juice bottle's shelf price becomes 1,000 + 18% = UGX 1,180. Worked on UGX 1,180, the margin looks like 32.2%. The shop still keeps 20%.
A registered shop counts its cost before the VAT it reclaims on purchases. A shop that isn't registered can't reclaim the VAT it pays, so that VAT is part of its cost.
Reprice on what the next delivery will cost
When your buying price rises, a price set on the old cost keeps your margin on paper and shrinks it in cash. The money from each sale has to buy the next unit at the new price.
For example, a Kampala shop sells an imported phone charger for UGX 10,000 against a cost of UGX 8,000, a 20% margin. The shilling weakens and the next delivery costs UGX 8,800 a charger.
At the old price, each new charger earns a 12% margin. For 20% again, the price must rise to 8,800 ÷ 0.80 = UGX 11,000.
Your reports keep showing the old margin until the older stock has sold, because stock is valued at what you paid. Price looks forward, to what replacing the goods will cost.
Markup or margin: which should you use?
Set your targets in margin and turn them into prices with the multiplier. Margin is a share of sales, the same base as your rent, wages and profit. So it tells you whether a price pays the bills.
For example, if expenses run at 15% of sales, a product with a 20% margin leaves 5% of its price as profit. A 20% markup on the same product is a 16.7% margin and leaves 1.7%.
Markup still has its place at the counter. Staff who price by adding to cost should add the markup from the table, not the margin you asked for.
What a discount does to your margin
A discount comes straight off the margin. Take the UGX 10,000 product that cost UGX 8,000: 10% off makes it UGX 9,000, and the profit falls from UGX 2,000 to UGX 1,000.
The margin drops from 20% to 11.1%, so the shop must sell twice as many to earn the same. How to increase retail sales with POS data has the table of extra sales each discount needs.
How to set prices and check your margin in ArmPOS
ArmPOS keeps each product's cost and price, holds the till to a floor price you set, and reports the margin you made.
- Enter cost and price. On the product form, under Pricing And Tax, fill Product Cost (what you pay) and Retail Price (what customers pay). Wholesale Price is optional (Add your first products).
- Set the tax. Tax Type Exclusive adds the Order Tax on top of the price, and Inclusive counts it in. A VAT-registered shop in Uganda enters 18% as the Order Tax, then works its margin on the price before tax.
- Set a floor. Fill Minimum Selling Price on each product. The POS refuses a cart price at or below it, so set it just under the lowest price you accept.
- Decide who may change prices. Only a role with Change product details, under Sales, can change a price in the cart. Leave it off for cashiers if your prices are fixed (Roles and permissions).
- Reprice many products at once. Products › Import (Update Only) reads a file with three columns: code, cost and retail_price. Work the prices out with the multiplier column first (Find, edit and update products).
- Check the margin you made. Reports › Profit and Loss shows Revenue, Expenses and Net Profit (Average Cost). Add Expenses back to that net profit, then divide by Revenue, for your gross margin (Reports to check every day).
- Check the margin on your shelves. Stock Inventory Valuation gives your stock's value at cost and at selling price, and the Potential Profit between them (Stock reports).
Potential Profit divided by the value at cost is your average markup; divided by the value at selling price, your average margin. For example, stock worth UGX 40,000,000 at cost and UGX 50,000,000 at price holds UGX 10,000,000: a 25% markup and a 20% margin.
Frequently asked questions
Is a 50% markup the same as a 50% margin?
No. A 50% markup is a 33.3% margin. A 50% margin needs a 100% markup, which means doubling the cost.
Can margin be more than 100%?
No. Margin is a share of the price, so it stays under 100% whenever the goods cost you anything. Markup has no ceiling: a 300% markup is a 75% margin.
Can markup and margin ever be equal?
Only when the profit is zero and both are 0%. With any profit at all, markup is the larger figure, because cost is smaller than price.
What is a good markup for a small shop?
One that covers your expenses as a share of sales and leaves a profit, at the speed the product sells. Fast sellers can live on a thin margin, and slow ones need a wide one. Inventory optimization shows how to compare them by what the money in stock earns.
Is margin the same as profit?
Margin is profit as a percentage of the price. Gross margin takes off the cost of the goods only, while net margin also takes off rent, wages and other expenses. Inventory and profit margins shows how lost and unsold stock lowers the margin you keep.
Pick your target margin, find its multiplier in the table, and reprice your ten best sellers from their latest landed cost. To keep costs and prices in one place and stop the till selling below your floor, create a free ArmPOS account.
