Should I use margin mode or markup mode in the selling-price calculator, and how different are the prices?
Margin mode makes your profit a share of the selling price; markup mode makes it a share of the product cost alone. With a cost of 50, shipping of 10 and 10% fees, 30% in margin mode gives a price of 100, while 30% in markup mode gives only 83.33.
What each mode measures
Margin mode asks: out of every 100 the customer pays, how much should stay with me? An answer of 30 means profit is 30% of the price. Markup mode asks: how much do I want to earn above what I paid for the product? An answer of 30 means profit is 30% of the product cost.
In this tool specifically, markup is measured against product cost only, not shipping and fees. Shipping and fixed fees are added as they are, and the price is then lifted to cover the percentage fees.
Same inputs, both modes
Product cost 50, shipping 10, percentage fees 10%.
Margin mode at 30%: price 100, profit 30, markup on product cost 60%.
Markup mode at 30%: price 83.33, profit 15, resulting margin 18%.
To reach a price of 100 in markup mode you need a markup of 60%.
The Selling-price calculator shows the resulting margin and markup in both modes. So you do not have to pick one method for good: choose the mode you think in, and read the other figure as a check.
Which one to choose
- Pick margin mode if you compare profitability across channels or track profit as a share of sales, since margin is measured against the money that actually came in.
- Pick markup mode if your supplier or trade talks in terms of 'add this much to wholesale' and you want a set markup on the product to survive the commission.
- Do not mix the two across one store without checking the resulting margin: a 30% markup can sound like a 30% margin, but here it gave only 18%.
Where people slip
The classic slip is a seller saying 'my margin is 30%' while meaning they add 30% to cost. In this example the gap between the two readings is 16.67 on every piece. With shipping and fees it grows, because in this mode the markup only covers the product cost. To get a feel for how the two relate on existing prices, try the Profit margin calculator, which shows both for any cost and price.
Common questions
Why does markup not include shipping?
That is how the tool is designed: markup is measured on product cost only, and other costs are added as they are. If you want it on all costs, add shipping to the product cost in one field.
Can markup mode refuse to calculate?
Only if percentage fees are 100% or more. Margin mode refuses when fees plus margin reach 100%.