No. “Profit Margin” is often confused with “Markup.” The two are often confused because, mathematically, they have the same numerator. However, to find the Markup you divide by the cost, while to find the Profit Margin you divide by the selling price (i.e. revenue).
Profit Margin measures profitability, and it is a function of the Net Profit as a percentage of the revenue. Net Profit Margin = (Net Profit)/ Selling Price. Net Profit = Selling Price (i.e. Revenue) less Cost of the Good Sold. This represents the percentage of profit one will receive for a particular item (or items) sold. Suppose you buy something for $30 (your Cost of Good Sold) and sell it for $100 (Selling Price/Revenue). Your Net Profit = $70 ($100 less $30). Your Profit Margin = $70/$100*(100) = 70%. This is the profit as a percentage of the revenue/sales price.
By contrast, Mark Up represents the difference between the cost of a good (or service) and its selling price as a percentage of the cost. Mark Up = Net Profit/Cost. Thus, using the example above, the Mark Up is $70/$30*(100) = 233%. The Mark Up number is always larger than the Profit Margin.
Are a mark-up percentage and a profit margin the same? was last modified: March 16th, 2016 by Tax