What is Profit Margin?
Profit margin is the percentage of the selling price that remains as profit after all costs are accounted for. It measures how much of each pound of sales is profit.
Formula:
Margin = (Selling Price - Cost) / Selling Price × 100
Example:
If you sell a product for CA$100 that costs CA$60, your profit is CA$40. Your margin is (40/100) × 100 = 40%
What is Markup?
Markup is the percentage increase applied to the cost price to determine the selling price. It measures profit as a percentage of the cost, not the selling price.
Formula:
Markup = (Selling Price - Cost) / Cost × 100
Example:
If you buy for CA$60 and sell for CA$100, your markup is (40/60) × 100 = 66.67%
Margin vs Markup: What's the Difference?
The key difference is the base used in the calculation. Margin uses selling price as the denominator, while markup uses cost. This means the same profit can have different percentages.
| Aspect | Margin | Markup |
|---|---|---|
| Definition | Profit as % of selling price | Profit as % of cost |
| Formula | (SP - CP) / SP × 100 | (SP - CP) / CP × 100 |
| Example (CP CA$60, SP CA$100) | (40/100) × 100 = 40% | (40/60) × 100 = 66.67% |
| Max Value | Always less than 100% | Can be any value |
Common Margin and Markup Percentages by Industry
Different industries operate with different standard margins and markups depending on factors like competition, product type, and operational costs.
| Industry | Typical Margin | Typical Markup |
|---|---|---|
| Retail / General Merchandise | 25-50% | 33-100% |
| Luxury / Designer | 40-70% | 67-233% |
| Groceries / Supermarket | 10-5% | 11-25% |
| Restaurants | 20-30% | 25-43% |
| Software / Services | 50-80% | 100-400% |
How to Price Productss for Profit
1. Calculate Your True Costs
Include product cost, packaging, shipping, labour, and overhead. Don't forget hidden costs like storage, returns, and discounts.
2. Know Your Market
Research competitor pricing and customer willingness to pay. Luxury markets support higher margins, while commodities operate on thinner margins.
3. Set Target Margin
Decide on your target margin based on industry standards and your business goals. This guides all your pricing decisions.
4. Calculate Selling Price
Use your target margin to back-calculate the selling price. Use our calculator to ensure all your prices meet your margin goals.
5. Review Regularly
Regularly review your margins as costs change. Adjust prices to maintain profitability while staying competitive.