If you retail, wholesale or sell any products, you'll know that you make your money only by marking up your products to take a margin off every sale.
But every so often I hear about businesspeople who don't know the difference between a mark-up and a margin. This can cause financial problems - they often think they are making more profit than they actually are.
If you're going to be successful, it is important to understand your pricing. Mark-up is what you put on top of the price you paid for the goods you are selling. For example, if you buy a box of goods from your supplier for $50 and put a 100 per cent mark up on it, you'll sell it for $100. But your margin on that sale is only 50 per cent or $50. ($100 minus the purchase price of $50 leaves $50: 50 per cent of the sale price.)
A 75 per cent mark-up yields a 42 per cent margin and a 50 per cent mark-up results in just a 33 per cent margin. People are often surprised at how little the margin turns out to be on what seems a significant mark-up.
For some businesses, not pricing products with an adequate mark-up, and thus margin, can seriously derail financial success. But if your mark-up is too high, with the expectation of an extravagant margin, you may not be able to sell your products because your customers may find they can get them cheaper elsewhere.