Question 1

What is the difference between margin and markup?

Accepted Answer

Margin is profit as a percentage of selling price (profit ÷ selling price × 100). Markup is profit as a percentage of cost (profit ÷ cost × 100). For example, an item costing $60 sold for $100 has a 40% margin but a 66.7% markup. Margin is always lower than markup for the same transaction.

Question 2

What is a good profit margin?

Accepted Answer

A good profit margin varies by industry. Retail: 5-20%, Software/SaaS: 70-90%, Restaurants: 3-9%, Consulting: 15-30%, Manufacturing: 10-20%. Net margins above 10% are generally considered healthy for most industries.

Question 3

How do I calculate selling price from cost and desired margin?

Accepted Answer

Selling Price = Cost ÷ (1 - Margin%). For example, if your cost is $50 and you want a 40% margin: $50 ÷ (1 - 0.40) = $83.33. This ensures your profit margin is exactly 40% of the selling price.

Question 4

Why do businesses use margin instead of markup?

Accepted Answer

Margin directly reflects profitability relative to revenue, making it easier to compare performance across products and industries. Financial statements use margin metrics (gross margin, operating margin, net margin). Markup is useful for setting prices but doesn't show the full picture of business health.

Question 5

How does gross margin differ from net margin?

Accepted Answer

Gross margin only considers revenue minus cost of goods sold (COGS). Net margin subtracts all expenses including operating costs, taxes, and interest. Net margin is always lower and represents the actual bottom-line profitability. For example, a company might have a 50% gross margin but only a 10% net margin.

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