Associated Topics || Dr. Math Home || Search Dr. Math

### Profit Margin and Percentage Markup

```Date: 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!
```
Associated Topics:
College Definitions
High School Definitions
Middle School Definitions

Search the Dr. Math Library:

 Find items containing (put spaces between keywords):   Click only once for faster results: [ Choose "whole words" when searching for a word like age.] all keywords, in any order at least one, that exact phrase parts of words whole words

Submit your own question to Dr. Math
Math Forum Home || Math Library || Quick Reference || Math Forum Search