P02 · Lesson 2 of 10 · 10 min · 4 hands-on tasks
Margin vs Markup
Same price, same cost, two different percentages. Mix them up and you quietly lose money on every sale.
🎥 Watch it (3 min)
🎬 Situation
Priya's friend runs a gift shop and says proudly: "I always add 100% to my costs. That's a 100% margin!"
Priya isn't sure. Can a margin even be 100%? Time to find out, because getting this wrong is one of the most common ways small shops lose money.
🎮 Play
Set the cost and price of one item and compare the two percentages.
Push the price really high. Markup keeps climbing forever, but margin can never reach 100%.
Now price a new item the right way. Pick a cost and the margin you want:
The higher the margin you want, the bigger the gap between the two methods.
🏷️ Name it
| Term | Formula | Carrot cake ($2 cost, $5 price) |
|---|---|---|
| Markup | profit ÷ cost | $3 ÷ $2 = 150% |
| Margin (gross margin) | profit ÷ price | $3 ÷ $5 = 60% |
| Price from markup | cost × (1 + markup) | $2 × 2.5 = $5 |
| Price from margin | cost ÷ (1 − margin) | $2 ÷ 0.4 = $5 |
Handy pairs to remember:
| Markup | Margin |
|---|---|
| 25% | 20% |
| 50% | 33% |
| 100% | 50% |
| 200% | 67% |
| 300% | 75% |
🖍️ Like you're five: you buy a toy for 2 stickers and swap it for 3. You made 1 sticker. Compared to what you paid (2), that's half extra: markup 50%. Compared to what you got (3), it's a third: margin 33%. Same sticker, measured against different piles.
Real life: Priya's friend with "a 100% margin" really has a 100% markup, which is a 50% margin. A true 100% margin would mean the goods cost nothing. Shops talk in markup because it's easy to apply to costs; investors talk in margin because it shows how much of each sales dollar is kept. Use both, but never mix them.
🔨 Do it: 4 tasks
0 / 4 doneTask 1 of 4 · Markup
A slice of Priya's carrot cake costs $2 to make. She sells it for $5.
What is her markup? (Profit ÷ cost.)
Task 2 of 4 · Margin
Same slice: costs $2, sells for $5. What is her margin? (Profit ÷ price.)
Task 3 of 4 · Price for a target margin
A new muffin costs $1.20 to make. Priya wants a 60% margin.
What price should she charge?
Task 4 of 4 · The costly mistake
A new hire prices the same $1.20 muffin as "cost plus 60%": $1.20 × 1.6 = $1.92.
What margin does Priya actually get at $1.92? (Round to one decimal.)
🧩 Case: The new price list
⭐ VIPPriya's new manager rewrote the price list over the weekend. The note says: "Every item priced at cost + 50%, so we keep our 50% margin." Crumb's rent and wages need an average margin of 50% just to break even.
What's wrong?
What would you do? VIP members make the call, see what happens next across 2 decisions, and get the expert debrief.
🔁 Remember it
An item costs $6 and sells for $10. Its margin is...
Which is always bigger for the same item (when there's a profit)?
To get a 75% margin on something that costs $5, charge...
Markup = profit ÷ cost. Margin = profit ÷ price. To hit a target margin, price = cost ÷ (1 − margin), never cost × (1 + margin).
📅 Use it Monday
Pick three things your company sells. Work out both the markup and the margin. Then ask the person who sets prices: when we say a percentage, is it of cost or of price?
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