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Business Financials – How to successfully understand the difference between Mark-Ups and Margins when pricing

images/BusinessFinancials.jpgIt is common that many don’t understand the difference between Mark-ups and Margins when it comes to pricing. This is part of the costing of goods and services (COS), and one is not quite the same as the other.

We usually start with a cost price of the quantities for materials and labor, let’s say $1000.

If we Mark-up we add on top to the cost

Let’s say 30%, then $300 (30%) is added to the $1000 and the sell price is $1300.

But the $300 compared to the Final Price is 23% of $1300, ((300/1300)X100). This is the Margin.

Now, if the Margin target you want is 30%, just adding 30% to the cost is incorrect.

To get 30% Margin on $1300 sell price is $390 (30% is 0.3 times $1300 gives $390).

And the $390 taken from $1300 leaves $910 cost price to buy the goods.

So $390 is 42.8% Mark-up of $910 cost (390/910). So if costs are $910 the calculation to achieve 30% margin is $910 x 1.428 = $1299.48, round up to $1300  (ie we need 42.8% of the COST added ON, to get 30% margin of total sell price).

Many businesses wonder why they don’t get the profit they expect, and sometimes this is the reason.

So check your figures and see if your Margins and Mark-ups are what you were expecting, and understand the difference between them!

Need help? Not sure? Call for FREE 30min advice / strategy session today!

Email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 0407 361 596 Australia

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Accounting Software Australia, MYOB, Quickbooks, accounts software, bookkeeping software
Accounting Software Australia, MYOB, Quickbooks, accounts software, bookkeeping software
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