This page is for anyone who sets a price, checks a price, or negotiates a price change in the apparel trade. Margin and markup both describe profit as a percentage, but they answer two different questions, and they are not the same number. Without this skill, a merchandiser can agree to "a 30% margin" and deliver a 30% markup instead, without noticing, because the two words sound like they mean the same thing. This lesson mainly teaches the money flow of an order: how a price is built and checked. It shows you the general rule, the shapes you meet at different points in the chain, and one worked case, so you can calculate either number correctly for any order you meet.
You need: to know that a garment's price is made of cost components plus profit (lesson 7.2 covers this in full, but is not required first).
By the end of this lesson you can:
Not covered here: how the cost components themselves are built (lesson 7.2), and when the money for a sale actually arrives (lesson 7.4).
| Term | Meaning |
|---|---|
| Profit | The money left over after all costs are paid, out of a selling price. |
| Margin | Profit divided by the selling price, shown as a percentage. |
| Markup | Profit divided by the cost before profit, shown as a percentage. |
| Cost before profit | Everything a company pays to make or buy a product, before its own profit is added: fabric, trims, making and overhead, for a factory. |
| Selling price | The price a company charges for what it sells; profit plus cost before profit. |
| FOB (free on board) | The factory's full selling price, delivered on board the ship at its own port; for a factory, this is the selling price used in its own margin. |
| Open account | A payment term where the goods are shipped before payment; the buyer pays a set number of days later. |
Margin and markup both start from the same profit amount, in dollars. Margin divides that profit by the selling price. Markup divides the same profit by the cost before profit. Because the selling price is always the larger number (cost before profit plus profit equals the selling price), margin is always a smaller percentage than markup, for the same dollar profit. Confusing the two is one of the most common costing mistakes in the trade, because both are written as a percentage and both describe "how much profit," so it is easy to forget which base each one uses.
Margin and markup are not specific to one company or one point in the chain. Anyone who buys at one price and sells at a higher price uses both, for different purposes.
| What can differ | The shapes you will meet | Why it matters to you |
|---|---|---|
| Which formula describes "how profitable is my selling price" | Margin (profit ÷ selling price). A factory, a brand or a shop uses margin to say how much of what it charges is profit, and to compare that share against other companies' typical margins. | Margin is the number used to judge whether a business is healthy, because it is measured against the price the business actually charges. |
| Which formula describes "how much did I add on top of cost" | Markup (profit ÷ cost). A factory, a brand or a shop uses markup to decide how much to add on top of what something cost, when setting the next selling price. | Markup is the number used to build a new price from a known cost. |
| Factory-side use | Delta Garments checks its own margin against other factories' typical margins, and uses markup when quoting a new price from its own cost. | A factory's FOB price is its selling price for margin, but is the buyer's cost for the buyer's own margin or markup one step later. |
| Domestic brand-side use | Cedar & Co., buying from Delta Garments and selling in its own shops, needs its own margin (to compare against other domestic brands) and its own markup (to decide how much to add on top of what it pays Delta Garments). | The same two formulas apply again, one step further down the chain, using Cedar & Co.'s own cost and selling price, not Delta Garments'. |
| Export or domestic | Export orders (Order A, Northline Apparel) and domestic orders (Cedar & Co.'s own shops) both use margin and markup the same way; only the companies and the numbers change. | The formulas do not change with the market; only whose cost and whose price you use changes. |
| Make to Order or Make to Stock | A Make to Order factory such as Delta Garments knows its cost and profit before it agrees the FOB price. A Make to Stock brand such as Cedar & Co. sets a shop price from its own forecast cost, then checks the margin or markup afterward. | Whichever business model, the same two formulas check whether the resulting price gives the profit share that was intended. |
This course follows Order A: Northline Apparel's order of 15,000 basic cotton T-shirts from Delta Garments. This lesson uses Order A's own fixed figures to show the two formulas working on real numbers, then turns to Cedar & Co., the domestic brand with 12 shops that buys from Delta Garments on 60-day open account and sells through its own shops under a Make to Stock model.
Delta Garments' own profit on Order A is USD 0.26 per piece. Its own selling price (the FOB price) is USD 3.20 per piece. Its own cost before profit (fabric, trims, making and overhead added together) is USD 2.94 per piece. These three figures are Delta Garments' own numbers, on its own side of the sale; they are the base example this lesson uses before turning to Cedar & Co.'s side of the trade.
The worked numberDelta Garments' margin is 8.125% (0.26 ÷ 3.20, then × 100); its markup is 8.84% (0.26 ÷ 2.94, then × 100). The same USD 0.26 profit gives 8.125% one way and 8.84% the other way. The gap between the two is small here because the profit itself is a small share of the price; the gap grows wider the higher the profit percentage gets, which is exactly why margin and markup must never be used interchangeably in a real negotiation.
A common mistake is using margin and markup as if they were interchangeable, especially when negotiating a price change. Someone asking for "a 20% increase" without saying margin or markup could mean two different dollar amounts, because a 20% markup and a 20% margin are calculated from different bases and give different selling prices. The ambiguity itself is the trap, not just picking the wrong formula: whichever side of the negotiation assumes the other meaning ends up with a different profit than it expected, and often does not discover this until after the price is agreed.
Profit is the money left over from a price after all costs are paid. Margin is that profit divided by the full selling price. Markup is the same profit divided by the cost before profit was added. The selling price is always bigger than the cost before profit, so markup is always a bigger percentage than margin, even though both come from the same dollar profit. To calculate margin, divide profit by the bigger number. To calculate markup, divide profit by the smaller number. Never assume the other side of a negotiation means the same thing you do when they say "a percentage of profit."
Omar, the owner of Cedar & Co., tells his merchandiser he wants "a 30% margin" on a new style before it goes into the shops. The merchandiser calculates the new shop price by adding 30% on top of what Cedar & Co. pays Delta Garments for the style.
Here is the note the merchandiser wrote before pricing the style:
Does adding 30% to the cost give a 30% margin? Decide before opening the answer.
No — adding 30% to cost gives a 30% markup, not a 30% margin. Two facts decide this.
First, what "adding 30% to cost" actually calculates. Cost × 1.30 means the extra 30% was calculated on the cost, the smaller number. That is the definition of markup (profit ÷ cost), not margin (profit ÷ selling price).
Second, what an actual 30% margin requires. For profit to be 30% of the selling price, not of the cost, the shop price must be calculated as cost ÷ (1 − 0.30), which is a larger number than simply adding 30% to cost. Dividing by 0.70 spreads the same cost over a bigger price, so profit ends up as a bigger share of that bigger price.
The merchandiser's shortcut looks close to what Omar asked for, but it is a different formula with a different base, and it leaves Cedar & Co. with a lower actual margin than Omar wanted.
Using an illustrative Cedar & Co. cost of USD 5.00 for this style (a teaching example only, not a Cedar & Co. master figure), here is what the merchandiser's 30%-markup method actually delivered against Omar's 30%-margin request.
The merchandiser's method gave a shop price of USD 6.50, a profit of USD 1.50, and an actual margin of 23.1% (1.50 ÷ 6.50, then × 100) — not the 30% margin Omar asked for. The gap, about 6.9 percentage points of margin on every piece sold, is a real loss against what Omar wanted, caused entirely by using markup's formula (divide by cost) when margin was meant (divide by selling price).
Open the course workbook's Costing sheet. It shows Order A's figures, with each cost component's share of the price already calculated. It does not calculate margin or markup; calculate both yourself, from the sheet's numbers, using this lesson's method.
Enter your Profit row and Total row into the sheet's "Your order" column. Your Total row is the cell the sheet uses for its share-of-price calculation; your cost before profit is Total minus Profit.
| Question | Order A (filled in) | Your order |
|---|---|---|
| Profit (the sheet's Profit row) | 0.26 | |
| Selling price (the sheet's Total row) | 3.20 | |
| Cost before profit (Total row minus Profit row) | 2.94 | |
| Margin = profit ÷ selling price × 100 | 8.125% | |
| Markup = profit ÷ cost before profit × 100 | 8.84% |
1. What is the difference between margin and markup?
2. For the same dollar profit, is markup always higher or lower than margin?
3. A trader buys a batch of trims from Trimco for USD 200 and sells it on to a factory for USD 250. What is the trader's markup?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| Profit | الربح | Profit | Kâr | The money left over after all costs are paid, out of a selling price. |
| Margin | الهامش | Marge | Marj | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Markup | الزيادة على التكلفة | Majoration (marge sur coût) | Kâr yüzdesi (markup) | Profit divided by the cost, shown as a percentage of what a company paid. |
| Cost before profit | التكلفة قبل الربح | Coût avant profit | Kârdan önceki maliyet | Everything a company pays to make or buy a product, before its own profit is added. |
| Selling price | سعر البيع | Prix de vente | Satış fiyatı | The price a company charges for what it sells; profit plus cost before profit. |
| FOB (free on board) | تسليم على ظهر السفينة في ميناء المصنع | FOB (franco à bord) | FOB (gemide teslim) | The factory delivers the goods on board the ship at its own port. Freight from there is the buyer's cost. |
| Open account | حساب مفتوح | Compte ouvert | Açık hesap | A payment term where the goods are shipped before payment; the buyer pays a set number of days later. |
You can now calculate margin and markup correctly. The next lesson looks at a different part of the same price: when the money actually arrives, and how payment terms decide whether a company can afford to wait. Back to the course map