To calculate your company’s margin, subtract your cost to produce the item from your selling price. Therefore, margin plus your cost to produce equal the selling price.
If the selling price of a product is $20 and the cost is $8, then the margin is $12. To find the percentage change, subtract the cost from the selling price ($20 – $8 = $12) and divide it by the selling price (12 / 20 =.60 or 60%). That $8 margin is equal to a 60% margin.
Some retailers may use the terms “markup” and “margin” interchangeably when referring to dollars e.g., $10 markup = $10 margin. However, when calculating in percentages, a 10% markup on cost is different from a 10% margin on price.
Make sure to remember the following key formulas:
$ Margin = Selling Price – Cost
% Margin = (Selling price – Cost) / Selling Price
Selling price = Cost / (1– % Margin)
Cost = Selling Price x (1– % Margin)
Markup % = (Selling price – Cost) / Cost
Selling Price = Cost x (1 + Markup %)