THE OLD WAY
MAKE LESS BENJAMINS!
Traditionally, designers calculated their markups by taking THEIR cost, and multiplying it by .3 for 30%. What this gives you using $100 as an example, is $30. Makes sense, right? But with margin, you get a profit of $142.85 which is $12.85 MORE in profit from the traditional way.
YOUR MARK-UP IS NOT YOUR MARGIN
Although it is less important, let’s talk about markup vs margin first. Many people use these terms interchangeably to mean the difference between what you pay for goods and what you sell them for – that is, gross profit. However, they are not the same thing. Misunderstanding the nature of markups and margins can make it easier to calculate them incorrectly – which cuts deeply into your bottom line.
IT DOESN’T MATTER IF YOU MIX UP THE TERMS AS LONG AS YOU DO THE MATH RIGHT
Many people say “mark up” when they mean “margin.” If you are fussy about language, this is annoying but it will not lead to financial disaster. It’s just words.
However, if you’ve confused the two concepts and are calculating your margins by multiplying the wholesale cost by the margin percentage, you could be headed for trouble.
Just remember – you want to calculate your profit as a percentage of the final value, not as a percentage of the original cost. When a customer hands you $10.00, you need to know how much goes into your pocket and how much goes to your vendor.