Margin and Markup are two common ways to measure profitability in Cost-Based Pricing, but they calculate profit differently. Understanding the distinction between them is key to setting accurate prices, maintaining healthy profit margins, and evaluating sales performance in CoreBridge.
This article explains the difference between Margin and Markup, when to use each, and how CoreBridge incorporates Margin into its pricing system.
Table of Contents
The Difference Between Margin and Markup
While Margin and Markup are both profitability measures, they use different formulas and perspectives.
Margin
Margin represents the percentage of the final selling price that is profit. In other words, it shows how much of each dollar earned is profit after covering costs.
Margin Formula
Gross Margin (%) = (Revenue – Cost of goods sold) / Revenue
Example:
If a product costs $100 to produce and you want a 50% margin, the selling price would be calculated as:
100÷(1−0.50)=200100 ÷ (1 - 0.50) = 200100÷(1−0.50)=200
In this example, the selling price is $200, resulting in a $100 profit—half of the total price.
Key Points:
Margin is based on the final selling price, not the cost.
It directly shows profit as a percentage of sales.
Margins are commonly used when focusing on profitability goals or reporting performance.
Markup
Markup represents the percentage added to the cost to determine the selling price. It focuses on how much higher the selling price is compared to the product’s cost.
Markup Formula
Markup (%) = (Selling Price – Cost) / Cost
Example:
If a product costs $100 and you apply a 50% markup, the selling price would be calculated as:
100×(1+0.50)=150100 × (1 + 0.50) = 150100×(1+0.50)=150
In this example, the selling price is $150, resulting in a $50 profit—50% of the cost, not of the selling price.
Key Points:
Markup is based on cost, not the final price.
It’s often used when you want to maintain consistent pricing relative to production costs.
Markup values will always be numerically higher than equivalent margins for the same profitability level.
Margin and Markup Summary
- Markup is based on cost.
- Margin is based on selling price.
Example: Comparing Markup and Margin
If a product costs $80 and sells for $100:
Markup = ($20 ÷ $80) × 100 = 25%
Margin = ($20 ÷ $100) × 100 = 20%
Although both reflect the same $20 profit, the percentage differs because Markup measures profit relative to cost, while Margin measures profit relative to revenue.
Detailed Comparison
The table below shows how the same transaction appears when viewed as Margin versus Markup.
| Cost | Margin | Markup | Selling Price |
|---|---|---|---|
| $100 | 50% Margin | 100% Markup | $200 |
| $100 | 40% Margin | 67% Markup | $166.67 |
| $100 | 25% Margin | 33% Markup | $133.33 |
| $100 | 10% Margin | 11% Markup | $111.11 |
As shown above, Markup will always be numerically higher than Margin for the same level of profitability.
Choosing Between Margin and Markup
While Markup is often used by sales or production teams to quickly estimate pricing, it can give an inflated view of profitability. Because it’s based on cost rather than total revenue, relying solely on Markup can make a product appear more profitable than it actually is.
Margin, on the other hand, provides a more accurate reflection of your financial performance because it ties directly to your sales revenue and can be compared to financial reports. This makes Margin the preferred measurement for tracking profitability and evaluating overall business health.
In CoreBridge, Margins can be reviewed through the Reports Module using Sales Reports and drill-down reporting. These reports help identify which products, parts, or services are performing well and which may need pricing adjustments.
Choose Cost Plus – Margin if you prefer to monitor profitability as a percentage of sales revenue.
Choose Cost Plus – Markup if you prefer to calculate selling prices based directly on production costs.
While both methods achieve the same overall goal - covering costs and generating profit - the key is consistency. Use one approach across your pricing models to maintain accurate reporting and predictable results.
Using Margin in CoreBridge
CoreBridge uses Margin when calculating Cost-Plus Pricing. Each Modifier, Part, or Part Group has its own configurable Margin Table, allowing you to control how pricing is calculated based on cost, quantity, or other factors.
You can define:
Default minimum and maximum Margins to ensure consistent profitability.
Custom Margins on individual Parts or Modifiers for flexibility.
Any changes made to these values will automatically apply to future pricing calculations and impact profitability immediately.
For details on other pricing options, see [Market-Based vs. Cost-Plus Pricing].
How to Determine a Target Margin
Several factors affect how you set your Margin beyond just the product cost. Consider the following when determining your target profitability:
Market demand: What is your market willing to pay?
Customer expectations: How does your pricing compare to competitors?
Turnaround time: Does the customer need the product quickly, and can you charge more for speed?
The goal is to find the price that optimizes profits while maintaining a competitive advantage. CoreBridge makes it easy to test different Margin levels and see their direct impact on your pricing.
Formulas
Margin Formula
Gross Margin (%) = (Revenue – Cost of goods sold) / Revenue
Markup Formula
Markup (%) = (Selling Price – Cost) / Cost
Key Takeaways
Markup expresses profit as a percentage of cost.
Margin expresses profit as a percentage of revenue.
Margin provides a clearer view of overall profitability and aligns directly with CoreBridge reporting.
CoreBridge uses Margin for all Cost-Based Pricing calculations to ensure consistency and accurate financial reporting.