Profit Margin and Percentage MarkupDate: 02/16/2007 at 05:39:18 From: Evelyn Subject: Profit margin and markup I have a small business and need to be able to compute profit margins and percentage increases. There seems to be a difference of "semantics" when I try to discuss this with customers. Specifically, suppose I have an item that my customer can buy at the wholesale price of $60.00, and then they can sell it at the retail price of $125.00. What is the percentage mark-up and is this a different number than what they would consider their profit margin? I believe to find the increase I would just take 60 divided by 125 which would equal .48 which would mean a 48% increase on price. Is this also considered the profit margin? I don't think so! I could say to the client that they have made a profit of what percent? Date: 02/16/2007 at 07:58:02 From: Doctor Ian Subject: Re: Profit margin and markup Hi Evelyn, Here are a couple of nice definitions for those terms, with examples: http://www.ebatesville.com/library/june_16_04.htm Following these definitions, gross profit gross profit margin = ------------ sales 125 - 60 = -------- 125 65 = --- 125 = 0.52 or 52 percent. And sales price - cost markup = ------------------ cost 125 - 60 = -------- 60 65 = -- 60 = 1.08 or 108 percent. The difference is what you're comparing the profit to: If you express the profit as a percentage of the sale price, you're computing the profit margin. If you express the profit as a percentage of the cost, you're computing the markup. Does that make sense? Let me know if you need more help. - Doctor Ian, The Math Forum http://mathforum.org/dr.math/ Date: 02/16/2007 at 10:08:14 From: Evelyn Subject: Thank you (Profit margin and markup) You are awesome!!!! Thank you so much. You made this perfectly clear. It's a bit embarrassing that I don't remember this, but I've not really needed to use it until now. Thanks again! |
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