In short: Markup is the percentage you add on top of cost price to reach the selling price, calculated on cost rather than on the selling price.
The full guide: Pricing your products
Work it out now: Profit margin
Markup is what you add on top of cost to set your selling price. The formula: markup = (selling price - cost price) ÷ cost price × 100. To price with it: selling price = cost price × (1 + markup). If an item costs JOD 10 and you add 30%, it sells for JOD 13. The difference from profit margin is that you divide by cost here, not by the selling price.
Plenty of shops in Jordan price this way because it is quick: a hardware store adds a fixed percentage per category, a bookshop adds one across stationery. When a new purchase invoice changes the cost, the price needs a look too. In Ghalleh the weekly report lists items whose selling price has fallen below cost, so you can fix the price before selling a large quantity at a loss.
From markup to margin
| Markup on cost | Margin on selling price | Price of an item costing JOD 10 |
|---|---|---|
| 10% | 9.1% | JOD 11.000 |
| 20% | 16.7% | JOD 12.000 |
| 25% | 20% | JOD 12.500 |
| 33.3% | 25% | JOD 13.333 |
| 50% | 33.3% | JOD 15.000 |
| 100% | 50% | JOD 20.000 |
Margin = markup ÷ (1 + markup). That is why the margin is always smaller than the markup.
Keep the two percentages apart when you negotiate or discount. If you give a customer a discount, work it out on the selling price and make sure it stays well clear of cost. And remember the market sometimes sets a price ceiling, whatever your markup says.
A shop example
A hardware shop in Zarqa buys a drill for JOD 40 and adds a 25% markup, so the price is 40 × 1.25 = JOD 50. The profit is JOD 10, which is 25% of cost but only 20% of the selling price. That 20% is the profit margin.
Common questions
Should I price with markup or with margin?
Markup is faster when pricing from cost, margin is clearer when reading profit. Use the first to set the price and the second to measure the result.
How do I convert markup into margin?
Divide the markup by (1 + markup). A 25% markup gives 0.25 ÷ 1.25 = 0.20, which is a 20% margin.