Markup and margin are not the same number
Both start from the same profit, the price minus your cost. Markup divides it by your cost. Margin divides it by your price. When you make money the price is larger than the cost, so margin is always the smaller percentage.
Markup = (price − cost) ÷ cost
Margin = (price − cost) ÷ price
With the example numbers, an $18.00 case of 24 costs $0.75 a unit. Sold to the store at $1.00, that is $0.25 profit per unit: a 33.3% markup and a 25.0% margin. Quoting one when you mean the other is one of the easiest ways to price a product too low.
Converting between the two
Markup = margin ÷ (1 − margin)
| Markup | Margin |
|---|---|
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 42.9% | 30.0% |
| 50% | 33.3% |
| 100% | 50.0% |
How to price for a target margin
Divide your cost by one minus the margin you want. To earn a 30% margin on a unit that costs you $0.75, charge $0.75 ÷ 0.70 = $1.07. Adding 30% to the cost instead gives $0.975, which is only a 23.1% margin.
Price for a target markup = cost × (1 + target markup)
What expired product does to your margin
When a store gives back an expired unit, you credit it at the price you charged, and you already paid for that unit when you bought the case. If you swap it for a fresh unit instead, you hand over a unit you will never be paid for. Per case, both come to the same thing: you are paid for one unit fewer than you bought.
In the example, one expired unit per case turns $24.00 of sales into $23.00 and cuts profit per case from $6.00 to $5.00. The margin on that case drops from 25.0% to 21.7%. That is why two routes with the same prices can earn very different money.
Price for a target margin after expired = case cost ÷ ((units − expired units) × (1 − target margin))
The store's side
The store's margin is the shelf price minus your price, divided by the shelf price. At a $1.79 shelf price and a $1.00 price from you, the store keeps $0.79 a unit, a 44.1% margin. Knowing that number helps when an owner pushes back on a price increase.