In bookkeeping and accounting, margin and markup are two related but distinct financial metrics used to analyze the profitability of a product or service. They are often used by businesses to set prices, assess product profitability, and make pricing decisions. Here’s the key difference between margin and markup:

**Margin:**

**Definition:**Margin, also known as profit margin, is a measure of profitability that expresses the profit as a percentage of the selling price. It reflects the portion of each sales dollar that represents profit after covering all costs, including both variable and fixed costs.**Formula:**The formula to calculate margin is as follows:Margin (%)=Profit×100/Selling Price- Profit: The amount of money earned after subtracting all costs (both variable and fixed) associated with producing or selling a product or service.
- Selling Price: The price at which the product or service is sold to customers.

**Interpretation:**A higher margin percentage indicates a greater proportion of profit relative to the selling price. It reflects how efficiently a product or service generates profit.

**Markup:**

**Definition:**Markup is a pricing strategy that represents the difference between the cost of a product or service and its selling price. It is typically expressed as a percentage and is added to the cost to determine the selling price.**Formula:**The formula to calculate markup is as follows:Markup (%)=Selling Price−Cost×100/Cost- Selling Price: The price at which the product or service is sold to customers.
- Cost: The cost incurred to produce or purchase the product or service.

**Interpretation:**Markup indicates how much the selling price exceeds the cost of the product or service. It is a measure of the profit margin as a percentage of the cost. A higher markup percentage means a larger profit relative to the cost.

**Key Differences:**

**Focus:**Margin focuses on profit as a percentage of the selling price, while markup focuses on the difference between the selling price and the cost as a percentage of the cost.**Calculation:**Margin is calculated by dividing profit by the selling price, whereas markup is calculated by dividing the difference between the selling price and cost by the cost.**Use:**Margin is often used to assess the overall profitability of a product or service in relation to its selling price. Markup is typically used to set prices and determine how much to add to the cost to achieve a desired selling price.**Relation:**Margin and markup are related but not directly interchangeable. You can calculate one from the other, but the two values represent different aspects of pricing and profitability.

In summary, while margin and markup are related concepts, they serve different purposes in bookkeeping and accounting. Margin measures profit as a percentage of selling price, focusing on overall profitability, while markup represents the difference between selling price and cost as a percentage of cost, primarily used for pricing decisions. Businesses often consider both metrics to make informed pricing choices and assess profitability.

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