This page is for a buyer or retail planner at a domestic brand who needs three separate numbers from the same style's own cost and selling price, and who must keep all three straight in the same conversation. This lesson mainly teaches the money flow: it takes one style bought directly from a factory, with no wholesale step in between, and calculates markup, margin and average selling price on it together.
Cedar & Co. buys the same 15,000-piece T-shirt style directly from Delta Garments at the factory's own FOB price of USD 3.20, with no landed cost step and no wholesale price sitting between the factory and the shop, since the order is domestic. Cedar & Co. sets its own shop price at USD 19.90, the same shop price Fairway Stores charges on its export version of the style. A buyer who reports only one of markup, margin or average selling price on this style is leaving out two-thirds of what the same set of numbers can show.
You need: no previous lesson, though lesson T20-C01-L01 introduces markup, margin and average selling price briefly and is a useful start. A basic idea of what a percentage is is enough to begin.
By the end of this lesson you can:
Not covered here: sell-through rate and stock cover in depth (lesson T20-C01-L02), like-for-like growth between two seasons (lesson T20-C01-L04), and assembling every calculation into one reference sheet (lesson T20-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. |
| Average selling price | The total money taken from a style's sales divided by the number of pieces sold, once full-price and markdown sales are both counted. |
| Open account | A payment method where the buyer pays the factory after an agreed number of days, rather than before or on shipment. |
| Full-price sale | A sale made at the shop price originally set for the style, before any markdown is applied. |
Markup is profit divided by cost, and margin is profit divided by selling price; both come from the same subtraction, cost taken away from selling price, but they never produce the same percentage because the two divide by different numbers. Average selling price is a third, separate calculation: it takes every piece actually sold, whether at full price or at a markdown, and finds the single average price customers paid. A buyer who has only ever calculated margin has not yet calculated markup or average selling price, even on the exact same style.
| What can differ | The shapes you will meet | Why it matters |
|---|---|---|
| A domestic buyer sourcing directly from the factory, no wholesale step | Cedar & Co. buys directly from Delta Garments at the FOB price of USD 3.20 and sells at its own shop price of USD 19.90, keeping the full gap between the two as its own profit. | With no wholesale step taking a share of the gap, the domestic buyer's own margin and markup are both higher than an export retailer buying the same shop price wholesale. |
| An export retailer buying wholesale from a brand, with a wholesale step in between | Fairway Stores buys the same style wholesale from Northline Apparel at USD 8.00, a price that already includes Delta Garments' own factory profit and Northline Apparel's own margin, then sells at the same USD 19.90 shop price. | Even at an identical shop price, Fairway Stores' own margin is lower than Cedar & Co.'s, because Fairway Stores' own cost of USD 8.00 is far higher than Cedar & Co.'s own cost of USD 3.20. |
| A season with only full-price sales, early on | In the early weeks of Cedar & Co.'s season, before any markdown, every piece sells at USD 19.90, so average selling price equals the shop price exactly. | Average selling price and shop price only separate once markdown sales begin; until then, checking either number gives the same answer. |
| A season that ends with some markdown stock cleared | By the end of the season, Cedar & Co. has sold 12,000 pieces at full price and 3,000 pieces at a markdown price of USD 15.92 to clear the remaining sizes. | Average selling price across the whole season falls below the shop price, even though markup and margin, both calculated from the shop price, do not change. |
Cedar & Co. buys the full 15,000 pieces directly from Delta Garments at USD 3.20 per piece and sets its own shop price at USD 19.90. By the end of the season, Cedar & Co. has sold 12,000 pieces at the full shop price and 3,000 pieces at a markdown price of USD 15.92, illustrative sales figures kept for teaching purposes only. Cedar & Co.'s own buying team needs all three calculations, markup, margin and average selling price, to close out the style's own season report.
Markup of 521.9% and margin of 83.9% both come from the exact same USD 16.70 of profit, and neither is wrong; they simply divide by different numbers, cost for markup and selling price for margin. Average selling price of USD 19.10 sits below the USD 19.90 shop price because 3,000 of the 15,000 pieces sold at a markdown, but it has no effect at all on the markup or margin percentages, which stay fixed to the original shop price and cost.
The methodA common mistake is stating "our markup is 83.9%" when the number just calculated is actually the margin, or the reverse; the two percentages come from the same profit but are never interchangeable, and using the wrong label in a conversation about pricing can lead a colleague to set the wrong shop price on the next style. A second, related mistake is assuming that margin itself falls once markdown sales begin; margin is fixed to the original shop price and cost, and stays at 83.9% throughout the season, even while average selling price falls to USD 19.10 because some pieces sold for less. What this costs a buying team is real: a manager reading "margin fell to USD 19.10" has confused a margin percentage with an average selling price in dollars, two figures measured in different units entirely.
Markup and margin both come from the same profit, but markup divides that profit by what a company paid, and margin divides it by what a company sells for, so the two percentages are always different on the same sale. Average selling price is a separate calculation entirely: it adds up all the money a season actually took in, across full-price and markdown sales, and divides by all the pieces sold, showing what customers really paid on average. Buying direct from a factory with no wholesale step in between, as Cedar & Co. does, keeps more of the gap between cost and shop price as profit than buying wholesale does, even at an identical shop price.
Cedar & Co. closes its season on the domestic T-shirt style. The season report shows 12,000 pieces sold at the full shop price of USD 19.90 and 3,000 pieces sold at a markdown price of USD 15.92, giving an average selling price of USD 19.10. A manager reviewing the report sends a note to the buying team.
Here is the note the manager sent:
Is the manager's statement about margin correct? Decide before opening the answer.
No, the manager's statement is not correct, based on two facts already in the season report.
First, margin is calculated from the shop price of USD 19.90 and the cost of USD 3.20, both of which are unchanged by the markdown. Cedar & Co.'s own margin remains 83.9% for the season, exactly as it would have been with no markdown at all; margin describes the pricing structure of the style, not what was actually collected in cash.
Second, average selling price of USD 19.10 is a completely different figure, measured in money rather than as a percentage, and it does fall when markdown sales are mixed in with full-price sales. The manager has correctly noticed that average selling price fell, but has mislabelled that fall as a change in margin.
The corrected note should state that average selling price fell to USD 19.10 because of the markdown, while margin, calculated on the shop price and cost, remained at 83.9% throughout the season.
Using Cedar & Co.'s own season figures:
Even measured against total money actually taken, including the markdown sales, Cedar & Co.'s own season margin of 83.2% is barely different from the 83.9% margin calculated on the shop price alone, because only 3,000 of 15,000 pieces sold at the reduced price. A manager who reports a large margin fall based on average selling price alone risks a buying team spending time investigating a problem that the underlying figures do not actually show.
Open the course workbook's "Markup, margin and ASP" sheet. It records a style's own cost, shop price, full-price pieces sold, markdown price, and markdown pieces sold, then calculates markup, margin, and average selling price separately and automatically, so the three figures are never confused. Enter a different style's own figures to see how the same method applies to any domestic or export order.
[Download the Retail maths reference workbook](../../templates/T20-C01-retail-maths-reference-workbook.xlsx)
1. Cedar & Co. buys a style at USD 3.20 and sells it at USD 19.90. Partway through the season, some pieces are marked down and average selling price falls to USD 19.10. What happens to Cedar & Co.'s own margin?
2. A style costs USD 5.00 and sells at USD 15.00. What are its markup and margin?
| 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. |
| Average selling price | متوسط سعر البيع | Prix de vente moyen | Ortalama satış fiyatı | The total money taken from a style's sales divided by the number of pieces sold, once full-price and markdown sales are both counted. |
| Open account | حساب مفتوح | Compte ouvert | Açık hesap | A payment method where the buyer pays the factory after an agreed number of days, rather than before or on shipment. |
| Full-price sale | البيع بالسعر الكامل | Vente au prix plein | Tam fiyattan satış | A sale made at the shop price originally set for the style, before any markdown is applied. |
You now know how to calculate markup, margin and average selling price together on the same style. The next lesson compares two seasons of the same style in the same shops to calculate like-for-like growth. Back to the course map