Margin v. MarkupPosted: May 17, 2012
If you’re selling with a markup (multiplying by 20%), you’re not getting as great a return as if you were to divide by 80%, which represents at 20% margin. For example, let’s say you have a product cost of $2. If you multiply this by 1.2, you get $2.40 for your 20% markup. But if you instead divide this by .8, you get $2.50, reflecting a 20% margin. It’s only ten cents in this example, but if you’re dealing with several thousands of dollars, the difference is more dramatic.
So decide now whether your pricing will be calculated using a margin or markup; then, communicate accurately when you publicize pricing promises to match your client’s financial expectations.