How to calculate margins and mark-ups

margins and markups

Do you confuse your margins and mark-ups?

People often get confused between margins and mark-ups and sometimes incorrectly use them interchangeably, we’re here to help!

This article aims to provide a clear explanation of the concept along with an example or two to give you an idea of what we mean.

The AAT also have a useful study-tip post all about margins and mark-ups, if you need some extra support: Study tips: Margins and mark-ups – AAT Comment

 

First example:

You buy baked beans from your supplier for £0.50 per can.
You sell them for £1.00

Mark-up:

This is a mark-up of £0.50
This can also be expressed as a mark-up of 100% i.e. you have added a profit of £0.50 (100% of the original cost).

Margin:

Your profit of £0.50 is 50% of the sales price
This can be expressed as making a margin of 50%

Most retail and wholesale businesses will operate in this way and a shopkeeper will have a range of mark-ups depending on the types of goods that they are selling.

Luxury goods typically have a much bigger mark-up and quite often, the supplier will suggest a mark-up by showing on their invoice the recommended retail price, but then deducting a trade discount. The trader can simply add the trade discount back when pricing up the goods.

 

Second example:

A baked bean supplier might show on their invoice to the shop:

margins and markups

We express margin and mark-up in percentage terms.
Let’s look at this in terms of the annual trading account:
(for ease, we’ll assume that opening stock and closing stock are the same)

margins and markups

Mark-up:

The Mark-up = C / B i.e., 60,000/60,000 x 100 = 100%
(We have marked up the cost of goods sold of £60,000 by 100% to arrive at our sales figure of £120,000)

Margin:

The Margin = C / A i.e., 60,000/120,000 x 100 = 50%

Here are a range of margins and mark-ups for you to see the inter-relationship between them – and to practice your algebra!!

margins and markups

 

 

Did you find this article valuable?

If you would like to know more about margins and mark-ups as well as other key topics then you might want to consider the AAT Level 3 Diploma in Accounting.

You can read more about it here: AAT Level 3 Accounting – Accountancy Learning

We hope that these study tips have helped you and have made the difference between your margin and mark-ups clearer! Please let us know if there are any further topics you would like us to write about.

If, however, you are one of our tutor-supported students, please get in touch with your personal tutor who will be more than happy to help you.

 

Ready to enrol? Click here: Shop – Accountancy Learning

For any other questions, please get in touch with us, we are always happy to help.

Call us: 01392 435349

Email us: [email protected]

Message us: Facebook

Accountancy Learning

Accountancy Learning Ltd specialises in the provision for accountancy training. We offer a wide spectrum of courses in accountancy and bookkeeping from beginner's level to the full AAT Accounting Technician qualification centered around our Virtual Learning Environment, Moodle. We also provide impartial advice on progression options to ACA, ACCA, CIMA, and ATT.

About Accountancy Learning

Accountancy Learning Ltd specialises in the provision for accountancy training. We offer a wide spectrum of courses in accountancy and bookkeeping from beginner’s level to the full AAT Accounting Technician qualification centered around our Virtual Learning Environment, Moodle. We also provide impartial advice on progression options to ACA, ACCA, CIMA, and ATT.

Recent Posts

Facebook
Twitter
LinkedIn

How to calculate margins and mark-ups