Mark-up and margin calculations

When you "mark-up" a product, you simply multipy the cost of a product by the mark-up percentage and add the product of that calculation to the cost of the item.

Using a margin calculation, you divide the cost by the the reciprocal of the profit margin percentage you want to use.

Using a $5 item and a 35% profit factor (% expressed as a decimal) here are the two calculations and results:

Mark-up example: $5 X .35 mark-up = $1.75 + $5 = $6.75 selling price.

Margin example: $5 ÷ (1.0 -.35) = $7.69 selling price.

The generally accepted method for pricing good and services is by using the margin method, which as you can see, produces more profit.