Price, markup, margin and profit

There isn’t much point in selling things for less than you paid for them. Mark-up percentage is the percentage difference between the actual cost and the selling price, while gross margin percentage is the percentage difference between the selling price and the profit. This post is a primer on how to work out markup and margin…they are not the same thing as you can see here.

When pricing products, two important metrics to understand are markup and margin. They are related, but distinct, concepts that affect your bottom line.

Markup refers to the amount added on top of the product’s cost to arrive at the retail price. For example, if a product costs you £5 and you sell it for $£10, your markup is £5 or 100% of the original cost.

Margin refers to markup expressed as a percentage of the retail price. Using the same example, if your product retails for £10 and costs £5, your margin is 50%. This is calculated by taking the markup (£5) and dividing it by the retail price (£10).

The key difference is that markup is added on top of the base cost, while margin is expressed as a percentage of the final sale price.

Understanding these metrics helps you properly price products at a level that covers your costs and desired profit goals.

Price products attractively for customers, but not so low that your business loses money. Striking this balance is made easier by knowing your markup and margin for every product. With that knowledge, you can confidently price items appropriately to grow your business.

Base data

Item retail price: £10
Item cost: £5

Retail price

Price set by the retailer to sell its goods to the consumer.
Note: price fixing is generally not allowed, and a retailer is free to choose their own price.
In this example, the retail price is £10.

Cost of goods often referred to as CoG

Amount paid to the vendor, plus or minus any additional fees to acquire the goods (freight/shipping, taxes).
This example is £5. The more complex, and correct way of looking at the CoG should include all other costs.

Mark-up percentage or mark-up %

Mark-up percentage is the percentage difference between the actual cost and the selling price

Retail price – Cost = Mark-up in £
Mark-up/Retail price = Mark-up %
Therefore in this example, the markup percentage is:
(£10-£5)/£5 = 100% mark-up

Margin

The margin percentage is the percentage difference between the selling price and the profit.

Retail price – Cost of goods / retail price.
Therefore in this example, the margin percentage is:
(£10-£5)/£5 = 50% margin

Kevin Harrington

I’m a UK-based B2B marketing consultant, specialising in strategic advice for SME business owners. I bring extensive hands-on expertise to every client engagement. Senior leadership roles across technology, media, payments, and publishing have shaped my practical approach. Highlights include serving as Chief Marketing Officer at The Panoply plc (now TPXimpact), Chief Commercial Officer at Tungsten Network, and Global Marketing Director at BBC Worldwide. Over the years, I’ve guided numerous SMEs through transformation and value creation. Helping businesses evolve and thrive is a genuine passion. Practical marketing insights and succession planning strategies are at the heart of what I do, as I believe growing a business’s asset value should be a rewarding and positive journey for every entrepreneur.

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