Markup vs. Margin: What’s the Difference? Explained using Excel - YouTube

Hello. I'm Chris Menard. Welcome  to a Microsoft Excel video.  

This video is going to discuss the difference  between the Markup versus Margin. So this is  

great if you are an accounting student or just  general business, you want to know how this works.

So over in column A and B,  I've already got this set up.  

Some item costs eight bucks . I'm going to do  the math in my head. I want to mark it up 25%.  

25% of $8 is $2. So therefore, the  retail or selling price is 10 bucks.  

There's my cost at 8. So the Excel formula  is the $10 minus the $8 right there.

Markup and margin, one item they do have in  common, they're always involving three items  

and those never change, the selling price or  retail price, the cost is the second item, and  

the third item is your profit. Where they differ  is when you're dealing with the percentages.

So I'm going to do the margin first.  

The margin is your profit divided  by the selling price. So the 20%,  

but your markup is still the profit. So that  hasn't changed, but you divide by cost. So margin  

is dividing by the selling price. Markup is  dividing by the cost and there you go right there.

If you were looking, the margin percentage of  sometimes called the gross margin percentage,  

I've seen it also as gross profit percentage.  Either term is correct. If you were doing vertical  

analysis on an income statement, and I  have a video, it is up in the top right  

corner of my Vertical Analysis, you would be  using the margin percentage, not the markup.

Now, part two of this video, I'm going to show you  

that the margin percentage is always going  to be less than the markup percentage,  

but that is okay, it's just how it works. If you  notice I've already got 20 and 25% in column B.

So in this example, we've got a $10 price for an  item, and then here are the different costs right  

here. So $10 minus 8, we've already done this  one. So this next one, $10 minus seven is $3. $3  

divided by the selling price of $10, is that  30%, by the way, I just typed it in here.  

But I want to show you how the margin percentage  

and the markup percentage differ, but it doesn't  matter what the selling price is. So here we go.

This is going to be G2  times the margin percentage,  

because that's going to give us the $2  profit, divided by G2 minus 1, minus E3.

How does that sound? Sounds horrible, cause  it's wrong. Let me do it real quick. G2  

times now it sounds right. So there's  your formula up in the formula bar,  

right above column A and B right there.  I do need to fix this formula, I need to  

make G2 an absolute cell reference.  I'm pressing the F4 function key.

Everything else can stay relative, meaning your  E's can be relative. So here we go, cross hairs.  

So at a 30% margin, our markup is 42.8%.  And at a 50% margin, our markup is 100%.

Let's talk about that last one  real quick. If something costs $40  

and you mark it up 100%, you're doubling  the price. So that $40 is now an $80,  

but, that's your markup, 100%, but your margin  is the 80 minus 40 to give you the $40 profit.  

The $40 profit divided by the retail price of $80  is 50%. What's cool about this, I'm over in G2,  

it does not matter what this retail price  is. Those percentages will be the same.

Anyway, I hope that helps. If  you need help understanding the  

difference between the Margin versus the Markup.

Feel free to subscribe to my YouTube channel.  Feel free to ask me any comments or questions down  

below and ring the bell and all that other stuff.  I appreciate your time. Have a wonderful day.