We consistently remind and coach our clients into knowing their numbers within their business. It is fundamentally the most important measure in your business.
Knowing your numbers is the only way to make objective business decisions. If you don’t know your numbers, how can you be informed as to what actions to take – whether scaling up or cutting back, without the numbers, you are aiming for success in the dark.
It is also important to know some of the basic financial terminology and how they relate to your products and services. One of the most regularly asked questions when we cover money mastery in our group coaching sessions, is on the markup vs margin formula – what’s the difference and how to calculate.
What IS the difference between mark up and margin?
Mark up is the amount added to the price of something. By marking up your products or services from their cost – you are adding profit. It lets you know how much you should be pricing your products at. There are various factors that impact the level of mark up including: what you think you can get away with charging, what your competitors are charging and how much in demand the service / product is. If it is much in demand – you are likely to be able to add a higher mark up.
Margin is the difference that exists between the net sale and the cost of the sold merchandise. It is the percentage of each and every sale that is profit, that you get to keep. The profit margin gives you a real picture of how potential earnings.
It is a common mistake to think that the mark up and margin will be the same
Markup vs Margin formula
How to calculate mark up
Profit
_________ X 100%
Purchase
If you buy for £100 and you sell for £125, you have made a profit of £25 which is a mark up of 25% ( 25/100 x 100%)
How to calculate profit margin
Profit
________ X 100%
Sales price
If your profit is £25 and the total cost is £125, the gross profit margin is 20%
(25/125 x100%)
It is vital that you not only know the difference between margin and mark up, but how to calculate because it can literally break or make a business.
Money mastery is one of the six foundation steps of our coaching programme and is covered in our group and individual coaching sessions.
Get in touch to find out how to join – Get on top of those numbers!
