Markup vs margin
Lesson 5 of 13 in our free Business Money Basics guide: a 5-minute money game with the key points below.
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Questions you'll answer
A cake costs £4 to make and sells for £8. What's the markup, and what's the margin?
Mo wants a 60% gross margin on a celebration cake that costs £4 to make. What price does he need?
Quick facts
- Fact: “For the same cake, the markup percentage is always bigger than the margin percentage.” — Markup divides profit by the smaller number (cost), so it comes out bigger.
- Myth: “Adding 30% to your costs gives you a 30% margin.” — It gives a 30% markup, which is only about a 23% margin.
- Fact: “Price = cost ÷ (1 − target margin) works out the price for a margin you want.” — It's the reverse of margin = profit ÷ price. Handy on any calculator.