Name: michelle
Who is asking: Other
Level of the question: All

Question: Hi

I have a widget I buy for $10. I want to make a 40% margin on the product cost. What do I then sell to the customer for?

Also, can you explain the differences between margin and mark up?

Thanks for your help.


Hi Michelle.

The margin and the markup actually refer to the same thing - the difference between what you pay for a widget and what you sell it for. The difference is the perspective: the margin is this difference as a percentage of the selling price whereas the markup is this difference as a percentage of the buying price.

Here's an example:
You pay: $50
You sell for: $55
Difference: $5
Margin = $5 / $55 = 9.1%
Markup = $5 / $50 = 10%

If you want a 40% margin, then that means that D/(C+D) = G, where C is the cost ($10), D is the difference and G is the margin in decimal form (0.40). If we solve this equation for D, we see that:
D/(C+D) = G
D = GC + GD
D(1-G) = GC
D = GC / (1-G)

Now use your figures in this equation: G = 0.40, C = $10. What is D? Knowing D, you just add it to the original cost C to get your selling price.

Hope this helps,
Stephen La Rocque.