The terms 'margin' and 'mark-up' are used interchangeably by some, but this is a mistake. Both values allow you to determine how much an entrepreneur earns on the products offered, but they are calculated in a different way, so the result of the calculation will be different. It is worth considering which method - margin or mark-up - is more profitable for your business.
Margin - what does the term mean?
What is the margin? It is the difference between the cost of purchase or production and the final price of the product. Here we are talking about the pure profit that goes into the seller's pocket - after deducting taxes, transport costs, staff salaries, etc.
The margin can be expressed as a percentage or a specific amount. However, it is more convenient to set a percentage margin, which can be the same for all or selected products - especially in the case of online shops, where prices update automatically when the appropriate formula is entered.
Based on the margin, the profit on sales is calculated. Knowing it allows you to calculate the level of profitability that individual products have. In this way, you know better where you can increase the price or which goods require additional advertising. When you run a sales-related business, you need to carry out sales margin calculations on an ongoing basis.
Sellers of second-hand items will certainly be interested in the possibility of issuing a margin VAT invoice. In this case, you only pay tax on the profit generated by the sale, but you cannot then deduct VAT from the purchase invoice.
You don't have to run a business or sell goods to encounter margins in your everyday life. Those with a history of buying a home have probably heard of a mortgage margin. It determines the bank's earning on lending. If you are a customer, ideally it should be as low as possible. 
How do you calculate the margin?
Most entrepreneurs calculate a margin instead of a mark-up. It is best to calculate what is more profitable in your case: it often depends on the specific industry. As a rule of thumb, entrepreneurs use a percentage margin calculated by the formula:
Margin = (selling price - purchase price) / selling price x 100%
The calculation of the markup looks similar except for one parameter. A small difference can make a big difference. When calculating the mark-up, we use the formula:
mark-up = (selling price - purchase price) / purchase price x 100%
The result obtained in both cases is presented as a percentage.
The margin in the price of a product does not always go entirely into the seller's pocket. Customers often forget that running a business generates large costs. There is a term called gross margin, which includes the profit from sales plus taxes, product storage charges, employee payments, etc. Only after deducting these do we get the net margin, i.e. the seller's pure profit. Before pricing your products, it is essential to think about the costs involved in buying and running your business.
Margin and mark-up - how do they differ?
Looking at the formulas above, you probably already know the difference between margin and mark-up. By knowing them, your business will become a stranger to profitability issues. However, remember that pricing is a more complex process.
You also need to consider your target customer group and their economic situation. Are they among the wealthier people who will be willing to pay more for a brand or quality? Sometimes it is more profitable to sell cheaper products in larger quantities.
Also conduct a competitive analysis. This will not only help you refine your offer or production process, but also your pricing. If you plan to introduce higher prices than your competitors, you need to know how to sell your product and emphasise its uniqueness. The right marketing will make the customer happy to pay more, but their expectations will also be higher. Remember also that by running an online business, you can reduce the cost of handling orders. Take a look at the offer for companies from InPost.
When setting a margin or mark-up, remember to be consistent. Keeping your company's accounts in order significantly affects its success in the market. Setting one or more common values for all products will help you a lot.
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