Small business owners confuse markup and margin all the time. Mike Chong from Merch Monster in Oakland, CA wants to clear things up for everyone.
So let's dig in and show you the difference between your markup and your margin.
Why you should understand the differenceThere are two big reasons to have a firm grasp on your markup and your margin.
- Predictability. Margin is used to calculate your future financials. Understanding your margin allows you to understand the health and sustainability of your business.
- Pricing. Markup is the simplest way to manipulate your pricing. Understanding how your markup relates to your margin lets you control the profitability of each job.
Here's why these matter: predictable profits are the only route to long-term sustainability. If you don't know your margin and how it relates to your markup, you may miscalculate your future financials.
With a firm grasp of these basic concepts, you can chart a course toward profitability, adjust your prices to get there, and have a better vision for where you are in relation to your revenue and profitability goals.
Markup versus marginLet's give you concrete (but simplified) examples to demonstrate markup versus margin.You purchase a t-shirt from a vendor at $1.00. For simplicity, we will call this the cost of goods.
Then you charge your customer $1.50 for the shirt. For simplicity, we will call this the revenue.
On this sale, your gross profits are assumed to be $0.50.
Read the full article here:
https://www.printavo.com/blog/markup-vs-margin-theyre-not-the-sameAbout the author: Mike Chong owns Merch Monster in Oakland, CA. His primary focus is providing high quality custom apparel and merchandise for businesses across the US. He regularly produces video content for Printavo, which you can find in our Tips & Tutorials playlist on the Printavo YouTube channel.
