Mark-up vs Gross Margin: Which is Preferable?
Though mark-up is often used by operations or sales departments to set prices it often overstates the profitability of the transaction.
Mathematically markup is always a larger number when compared to the gross margin.
Consequently, non-financial individuals think they are obtaining a larger profit than is often the case.
By calculating sales prices in gross margin terms they can compare the profitability of that transaction to the economics to the financial statements.
Steps to minimize Mark-up vs Margin Mistakes
Terminology and calculations aside, it is very important to remember that there are more factors that affect the selling prices than merely cost.
What the market will bear, or what the customer is willing to pay, will ultimately impact the selling price.
The key is to find the price that optimizes profits while maintaining a competitive advantage. Below are steps you can take to avoid confusion when working with mark-up rates vs margin rates:
- 1.Use a pricing model or pricing tool to quote sales. Have the tool calculate both the mark-up percentage and the gross margin percentage
- 2.Relate gross margin percentage per sales invoice to income statement
- 3.Organise your chart of accounts to compare gross margin rate to sales quotes
- 4.Educate your sales force in the differences. By targeting the gross margin percentage vs the mark-up percentage you can throw an additional 2-3 percent profit to the bottom line.
|
Desired Margin |
Mark-up Percent |
Mark-up Multiplier |
|
Desired Margin |
Mark-up Percent |
Mark-up Multiplier |
|
1% |
1.01% |
1.010 |
51% |
107.08% |
2.041 |
|
|
2% |
2.04% |
1.020 |
52% |
108.33% |
2.083 |
|
|
3% |
3.09% |
1.031 |
53% |
112.77% |
2.128 |
|
|
4% |
4.17% |
1.042 |
54% |
117.39% |
2.174 |
|
|
5% |
5.26% |
1.053 |
55% |
122.22% |
2.222 |
|
|
6% |
6.38% |
1.064 |
56% |
127.27% |
2.273 |
|
|
7% |
7.53% |
1.075 |
57% |
132.56% |
2.326 |
|
|
8% |
8.70% |
1.087 |
58% |
138.10% |
2.381 |
|
|
9% |
9.89% |
1.099 |
59% |
143.90% |
2.439 |
|
|
10% |
11.11% |
1.111 |
60% |
150.00% |
2.500 |
|
|
11% |
12.36% |
1.124 |
61% |
156.41% |
2.564 |
|
|
12% |
13.64% |
1.136 |
62% |
163.16% |
2.632 |
|
|
13% |
14.94% |
1.149 |
63% |
170.27% |
2.703 |
|
|
14% |
16.28% |
1.163 |
64% |
177.78% |
2.778 |
|
|
15% |
17.65% |
1.176 |
65% |
185.71% |
2.857 |
|
|
16% |
19.05% |
1.190 |
66% |
194.12% |
2.941 |
|
|
17% |
20.48% |
1.205 |
67% |
203.03% |
3.030 |
|
|
18% |
21.95% |
1.220 |
68% |
212.50% |
3.125 |
|
|
19% |
23.46% |
1.235 |
69% |
222.58% |
3.226 |
|
|
20% |
25.00% |
1.250 |
70% |
233.33% |
3.333 |
|
|
21% |
26.58% |
1.266 |
71% |
244.83% |
3.448 |
|
|
22% |
28.21% |
1.282 |
72% |
257.14% |
3.571 |
|
|
23% |
29.87% |
1.299 |
73% |
270.37% |
3.704 |
|
|
24% |
31.58% |
1.316 |
74% |
284.62% |
3.846 |
|
|
25% |
33.33% |
1.333 |
75% |
300.00% |
4.000 |
|
|
26% |
35.14% |
1.351 |
76% |
316.67% |
4.167 |
|
|
27% |
36.99% |
1.370 |
77% |
334.78% |
4.348 |
|
|
28% |
38.89% |
1.389 |
78% |
354.55% |
4.545 |
|
|
29% |
40.85% |
1.408 |
79% |
376.19% |
4.762 |
|
|
30% |
42.86% |
1.429 |
80% |
400.00% |
5.000 |
|
|
31% |
44.93% |
1.449 |
81% |
426% |
5.263 |
|
|
32% |
47.06% |
1.471 |
82% |
456% |
5.556 |
|
|
33% |
49.25% |
1.493 |
83% |
488% |
5.882 |
|
|
34% |
51.52% |
1.515 |
84% |
525% |
6.250 |
|
|
35% |
53.85% |
1.538 |
85% |
567% |
6.667 |
|
|
36% |
56.25% |
1.563 |
86% |
614% |
7.143 |
|
|
37% |
58.73% |
1.587 |
87% |
669% |
7.692 |
|
|
38% |
61.29% |
1.613 |
88% |
733% |
8.333 |
|
|
39% |
63.93% |
1.639 |
89% |
809% |
9.091 |
|
|
40% |
66.67% |
1.667 |
90% |
900% |
10.000 |
|
|
41% |
69.49% |
1.695 |
91% |
1011% |
11.111 |
|
|
42% |
72.41% |
1.724 |
92% |
1150% |
12.500 |
|
|
43% |
75.44% |
1.754 |
93% |
1329% |
14.286 |
|
|
44% |
78.57% |
1.786 |
94% |
1567% |
16.667 |
|
|
45% |
81.82% |
1.818 |
95% |
1900% |
20.000 |
|
|
46% |
85.19% |
1.852 |
96% |
2400% |
25.000 |
|
|
47% |
88.68% |
1.887 |
97% |
3233% |
33.333 |
|
|
48% |
92.31% |
1.923 |
98% |
4900% |
50.000 |
|
|
49% |
96.08% |
1.961 |
99% |
9900% |
100.000 |
|
|
50% |
100.00% |
2.000 |
|
|
|
