Calculating Margin On Product
Margin and Markup Explained with Examples and Analogies
Analogy 1: Baking a cake
- Cost of ingredients: $10
- Desired margin: 40%
- Selling Price = $10 / (1 - 0.4) = $10 / 0.6 = $16.67
- Markup: $6.67 (66.7% of the cost)
Analogy 2: Running a lemonade stand
- Cost per cup: $0.50
- Desired margin: 50%
- Selling Price = $0.50 / (1 - 0.5) = $0.50 / 0.5 = $1.00
- Markup: $0.50 (100% of the cost)
Summary Table:
| Example | Cost | Margin | Selling Price | Markup | Markup % |
|---|---|---|---|---|---|
| Product 1 | $100 | 40% | $166.67 | $66.67 | 66.7% |
| Bag (1 color) | $3.25 | 35% | $5.00 | $1.75 | 53.8% |
| Shirt (2 color) | $2.50 | 30% | $3.57 | $1.07 | 42.8% |
| Coffee Mug | $3.00 | 25% | $4.00 | $1.00 | 33.3% |
In this summary, we compare the margin and markup for each product. Margin is the percentage of the selling price representing profit, while markup is the percentage increase over the cost to determine the selling price.