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MBA for Sales Engineers


Profit_margin versus Mark_up_margin

What is difference between mark up and profit margin? that is simply demonstrated in below two simple equations:


Mark up = (Price -Cost) / Cost --- note that the mark up could be more than 100% or less than 100% does not matter.


Profit_margin = (Revenue - Cost) / Revenue --- note that profit margin cannot be more than 100% as you cannot gain more than your actual revenue. Revenue is simply the total price or prices of one project/product or sum of projects/products together, its your final contract or purchase order value regardless any thing else.


As you can see, it is smarter to adopt the profit_margin on one project or sum of projects rather than mark up. If not yet convinced, well make the below simple math


if product costs you 100 and you decided to sell it at 30% mark up. Then your end price(revenue) shall be 100 * 1.3 = 130 // you made 30 but careful, you made profit margin of (130 - 100) /130 = 23% only , so 30% mark up makes you 23% profit margin.


In order not to have such confusion if you are targeting 30% profit margin , you must divide the 100 on 70% and see the difference:


100 / 70% = 142.85, therefor, if you wish you achieve 30% profit margin on a product costs you 100, then you must sell it at 142.85


Finally, to calcualte the amount of net profit:

Net profit value = (Revenue - Cost of goods - Expenses - Taxes )



Hope this was interesting, you may be interested in reviewing our costs and marketing web page at


https://www.fabrix360.com/cost








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