Learning Goal: Calculate cost, retail price, markup percentage, and margin percentage with ease.

Complete Lesson Content:
The relationship between cost and selling price is fundamental.

  • Cost Price (CP): what you pay the supplier.
  • Selling Price (SP): what the customer pays.
  • Markup % = (SP – CP) / CP × 100. It tells you how much you’ve added to the cost.
  • Margin % = (SP – CP) / SP × 100. It tells you what portion of the selling price is profit.
    Many beginners confuse the two. A 50% markup yields only a 33% margin. Always use margin when discussing profitability.
    Definitions:
  • Markup – the amount added to cost to arrive at retail.
  • Margin – the profit expressed as a percentage of the selling price.
    Step‑by‑step Explanation:
  1. A T‑shirt costs $10. You want a 60% markup. Markup = $10 × 0.60 = $6. Retail = $16.
  2. The margin = ($16 – $10) / $16 = 37.5%.
  3. If you need a 55% margin, use the formula: Cost / (1 – Margin%) = $10 / 0.45 = $22.22 retail.
    Best Practices: Use margin for financial reporting; use markup for pricing strategy.
    Common Mistakes: Thinking a 50% markup gives a 50% margin. It doesn’t.
    Real Industry Example: A department store requires a minimum 55% margin on its private label goods; buyers back‑calculate the maximum cost they can pay.
    Mini Case Study: A junior priced a jacket at $100, aiming for a 50% margin. However, they used markup, so the actual margin was only 33%. This error led to a profit shortfall. Now they always double‑check formulas.
    **Practical Activity:** Calculate the retail price for an item costing $25 that needs a 40% margin. (Answer: $41.67)
    Assignment: Create an Excel sheet with 10 products, each with a cost. Apply different markup percentages and margin percentages, and verify results.
    Lesson Summary: Markup and margin are the foundation; master them to avoid profit leaks.
    Key Takeaways:
  • Markup on cost, margin on price.
  • Margin % = (SP – CP) / SP.
  • Always know which you’re using.
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