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Markup

Markup is the amount added to a product's cost to reach its selling price, expressed as a percentage of that cost.

How it works

Markup and margin describe the same money from one sale: the difference between the selling price and the cost of goods. Markup divides that difference by the cost; margin divides it by the price. As long as the price is above cost, one sale gives two different percentages, and markup is always the larger of the two.

Both are written as a plain percentage, and people often use the two words interchangeably. The mix-up matters once you use the number to work out break-even ROAS, because that formula needs margin. The guide to markup vs margin works through the difference.

Formula

(Selling price − cost of goods) ÷ cost of goods × 100%

Example

Example store, not client data.

The tableware shop buys a dinner set for 390 and sells it for 600. The difference is 210.

  • Markup = 210 ÷ 390 = 53.8%.
  • Margin = 210 ÷ 600 = 35%.
  • Break-even ROAS = 1 ÷ 0.35 = 2.86.

Not to be confused with

  • Margin — the same difference divided by the price instead of the cost. To convert between the two as shares: margin = markup ÷ (1 + markup); markup = margin ÷ (1 − margin). For the dinner set: 0.538 ÷ 1.538 = 0.35.

Right and wrong readings

  • Wrong: “Our markup is 35%, so break-even ROAS is 1 ÷ 0.35 = 2.86.” Right: a 35% markup is a margin of 0.35 ÷ 1.35 = 25.9%, so break-even ROAS is 1 ÷ 0.259 = 3.86. A campaign at a ROAS of 3 looks profitable by the first figure and loses money by the second. This is one of the unit economics mistakes that lead to a target ROAS below break-even.

Sources