eli5: What is the difference between markup and margin?
In: Economics
Markup is the ratio of the profit to the actual cost.
Margin is the ratio of the profit to the selling price.
If you have an item that costs $10 to make and you sell it for $11:
Markup = (11-10)/10 = 10%
Margin = (11-10)/11 = 9%
Because they’re calculated from the same 2 values, they are directly related. At low values they are similar. As the difference between cost and price get higher, they diverge. Margin can never be more than 100% (unless you somehow have negative costs), but markup can. If you make an item for $10 and sell it for $100, your markup is 900%, but your margin is 90%.
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