This page is for a factory merchandiser, costing clerk, or buyer who has to explain why two people looking at the same profit on the same T-shirt can state two different percentages, both correct. At work, "markup" and "margin" get used loosely as if they were the same word, and that habit causes real confusion once a garment moves from a factory's FOB price up a retail price ladder to a shop price. This lesson mainly teaches the money flow: it shows that markup is profit divided by cost, margin is profit divided by selling price, and both change at every rung of Order A's own price ladder.
Order A moves from Delta Garments' FOB price of USD 3.20, to a landed cost of USD 3.70 once Northline Apparel adds shipping and duty, to a wholesale price of USD 8.00, to Fairway Stores' own shop price of USD 19.90. At each of those points, someone can calculate a markup and a margin, and the two numbers are never equal. Without this skill, a merchandiser who mixes up markup and margin will quote the wrong percentage to a buyer, or misread how much room a retail price ladder actually has left in it.
You need: lesson T19-C01-L01, which shows that each company on a price ladder calculates its own margin against its own selling price.
By the end of this lesson you can:
Not covered here: planning a retail buying budget before committing to a style (lesson T19-C01-L03), the cost of stock marked down after it fails to sell (lesson T19-C01-L04), and building one combined worksheet across all four lessons (lesson T19-C01-L05).
| Term | Meaning |
|---|---|
| Markup | Profit divided by the cost, shown as a percentage of what a company paid. |
| Margin | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| FOB price | The price the factory charges for the garment, delivered on board the ship at its own port. |
| Landed cost | The FOB price plus shipping and duty once goods reach the buyer's own country, USD 3.70 per piece on Order A. |
| Wholesale price | The price a brand charges when it sells the finished goods on, for example to its own retail arm or another retailer. |
| Shop price | The price the customer pays at the till. Also called the retail price. |
| Retail price ladder | The sequence of separate selling prices a garment passes through, from the factory's FOB price to the shop price the final customer pays. |
At any single point on a retail price ladder, one company's profit can be expressed two ways. Markup is that profit divided by what the company paid to get the goods; margin is the same profit divided by what the company sells the goods for. Because the selling price is always higher than the cost, once any profit exists, markup is always a larger percentage than margin on the same profit. A merchandiser who states "60%" without saying whether that is a markup or a margin has not actually said anything useful, because 60% markup and 60% margin describe two different amounts of profit on the same cost.
A merchandiser meets several shapes of the markup-versus-margin gap across a normal working year, and mixing the two up in any of them leads to a wrong number reaching a buyer or a factory.
| What can differ | The shapes you will meet | Why it matters |
|---|---|---|
| Factory-level profit, low up the ladder | Delta Garments earns USD 0.26 profit on Order A's cost of USD 2.94; its own markup is 8.8%, its own margin is 8.1%. | At a low, single-digit profit level, markup and margin are numerically close, so mixing them up causes only a small error. |
| Retail-level profit, high up the ladder | Fairway Stores earns USD 11.90 profit on its own wholesale cost of USD 8.00; its own markup is 148.8%, its own margin is 59.8%. | At a high profit level, markup and margin diverge sharply; quoting one instead of the other misstates the retailer's own profitability by nearly 90 percentage points. |
| A domestic order priced without a separate wholesale step | A local brand such as Cedar & Co. sets its own shop price directly over its own buying cost from Delta Garments, with no separate wholesale company in between. | Fewer rungs on the ladder still means each remaining company must state clearly whether it is quoting its own markup or its own margin. |
| A buyer asking for "the markup" when the workbook only stores margin | A buying office's own workbook stores every price as a margin percentage; a new buyer asks a supplier for "the markup" and receives a margin number by mistake. | Reading a margin figure as though it were a markup figure understates how much profit a company actually earns on its own cost. |
Delta Garments confirms Order A at FOB USD 3.20 per piece, made up of fabric, trims, making and overhead costs of USD 2.94, plus a planned profit of USD 0.26. Mona, the merchandiser, is training a new colleague who has just read that Fairway Stores earns "148.8%" on the same T-shirt and assumes Delta Garments must earn a similarly large number. Mona has to show, using the factory's own figures, why Delta Garments' own numbers are much smaller, and why "148.8%" was a markup, not a margin.
The last calc line shows the two numbers are not independent facts; margin can always be derived from markup using the same profit, because both describe the same USD 11.90, only divided by a different base. Anyone who has one of the two figures and knows the formula can always find the other.
The methodA common mistake is treating "148.8%" and "59.8%" as competing, contradictory descriptions of Fairway Stores' own profitability on Order A, when they are the same USD 11.90 of profit expressed two different ways. A merchandiser who quotes a factory's own markup of 8.8% to a buyer who was expecting a margin figure understates nothing dramatic at that low level, but the same mix-up at retail level, quoting 148.8% where 59.8% was meant, badly overstates how much of the shop price is actual profit. What this costs a business that gets it wrong is a wrong impression of how much room exists to negotiate a price, because a person who believes a retailer earns "148.8% of the shop price" as margin, rather than as markup on a much smaller cost, will assume there is far more room to demand a price cut than actually exists.
Markup and margin both describe profit, but they divide it by two different numbers. Markup is profit divided by what a company paid. Margin is profit divided by what a company sells for. Because the selling price is always the bigger number of the two, markup is always a bigger percentage than margin on the same profit. Low up a retail price ladder, where profit is small, the two numbers stay close together. High up the ladder, where profit is large, the two numbers pull far apart. Anyone stating a percentage should always say which one it is, because the two words are not interchangeable.
Sara, the buyer at Northline Apparel, tells Karim at Delta Garments that "Fairway Stores runs on a 148.8% margin, so there should be room for the factory to accept a lower FOB price." Karim knows Order A's own figures well but wants to check Sara's number before responding, because he suspects it may not describe what she thinks it describes.
Here is the message Sara actually sent:
Is Sara's figure actually Fairway Stores' margin, and does it support her request? Decide before opening the answer.
No. The figure of 148.8% is Fairway Stores' own markup, not its margin. Two facts from this lesson decide it.
First, Fairway Stores' own margin on Order A is 59.8%, not 148.8%. The 148.8% figure comes from dividing its own profit of USD 11.90 by its own cost of USD 8.00, which is the markup formula. Its margin, profit divided by its own shop price of USD 19.90, is 59.8%.
Second, neither figure describes room in Delta Garments' own FOB price. Fairway Stores' own markup or margin is calculated entirely on its own wholesale cost of USD 8.00 and its own shop price of USD 19.90; it says nothing about whether Delta Garments' own USD 3.20 FOB price, which sits several steps lower on the ladder, has room to move.
Sara's note should be corrected to say "markup", and any request to Delta Garments about its own FOB price needs to be based on Delta Garments' own cost components, not on a retail figure taken from a different rung of the ladder.
Using Order A's own fixed figures:
An 89.0 percentage-point gap between what Sara believed and what Fairway Stores' figures actually show is large enough to send a request to Delta Garments built on a wrong impression of how much profit the retailer actually keeps. Correcting a mislabelled percentage after it has already reached a factory costs time and can damage trust between buyer and factory over a number that was wrong from the start, not because the underlying business was unfair.
Open the course workbook's "Markup and margin" sheet. It lists each point on Order A's own retail price ladder, with a column for cost, selling price, profit, markup and margin, all calculated automatically once the cost and selling price are entered. Use it to check any stated percentage before passing it on, by confirming which formula produced it.
[Download the Retail profitability worksheet](../../templates/T19-C01-retail-profitability-worksheet.xlsx)
1. A company's profit is USD 11.90 on a cost of USD 8.00. What is its markup?
2. A factory's markup on an order is 25%. Which of these statements about its margin must be true?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| 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. |
| Margin | الهامش | Marge | Marj | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| FOB price | سعر التسليم على ظهر السفينة | Prix FOB | FOB fiyatı | The price the factory charges for the garment, delivered on board the ship at its own port. |
| Landed cost | التكلفة بعد الوصول | Coût rendu | Teslim maliyeti | The FOB price plus shipping and duty once goods reach the buyer's own country, USD 3.70 per piece on Order A. |
| Wholesale price | سعر الجملة | Prix de gros | Toptan fiyat | The price a brand charges when it sells the finished goods on, for example to its own retail arm or another retailer. |
| Shop price | سعر المحل | Prix boutique (prix de détail) | Mağaza fiyatı | The price the customer pays at the till. Also called the retail price. |
| Retail price ladder | سلم أسعار التجزئة | Échelle des prix de détail | Perakende fiyat merdiveni | The sequence of separate selling prices a garment passes through, from the factory's FOB price to the shop price the final customer pays. |
You now know how markup and margin move together, but differently, at every point on a price ladder. The next lesson moves fully to the retail buyer's side and shows why a retailer sets a spending budget before choosing any single style to buy. Back to the course map