Margin, markup and why the difference matters

The two numbers people confuse daily

Markup is the amount added to cost, expressed as a percentage *of cost*. Margin is the profit, expressed as a percentage *of the selling price*.

They are not the same number and confusing them loses real money.

An item costs £10 and sells for £15.

• Markup: £5 ÷ £10 = 50%
• Margin: £5 ÷ £15 = 33.3%

A manager who thinks a 50% markup gives a 50% margin has overestimated profitability by half. This error is common enough that it is worth being the person on the shop floor who does not make it.

Gross and net

Gross margin is sales minus the cost of the goods. It pays for everything else. Net profit is what remains after rent, wages, energy, insurance, waste, card fees and everything else.

This is the number that surprises people: typical net margins in general retail are low single-digit percentages. A supermarket may keep two or three pence of a pound. Which means:

• A £40 stock loss is not trivial. At a 3% net margin, recovering £40 of lost profit requires

over £1,300 of additional sales. This is why managers care about discrepancies that feel small.

• Markdowns bite hard. Discounting by 20% on a 33% margin removes about 60% of the profit on

that item, not 20%.

• Volume matters enormously. Small per-item profits only work at scale, which is why

availability and throughput dominate retail management.

Sell-through and stock turn

Sell-through = units sold ÷ units received, over a period. It tells you whether a line is moving. Stock turn = how many times you sell and replace your stock in a year. Higher generally means cash is working rather than sitting on a shelf.

Slow-moving stock costs more than it appears: it occupies space a faster line could use, ties up cash, and increasingly risks markdown as it ages or goes out of season.

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Check your understanding. An item costs £8 and sells for £12. Calculate markup and margin. Then work out roughly how much extra revenue is needed to recover a £25 loss at a 4% net margin.