The markup calculation is more likely to result in pricing changes over time than a margin-based price, because the cost upon which the markup figure is based may vary over time or its calculation may vary, resulting in different costs which therefore lead to different prices. Essentially, if you want to derive a certain margin, you have to markup a product cost by a percentage greater than the amount of the margin, since the basis for the markup calculation is cost, rather than revenue since the cost figure should be lower than the revenue figure, the markup percentage must be higher than the margin percentage. It is easy to see where a person could get into trouble deriving prices if there is confusion about the meaning of margins and markups. Or, stated as a percentage, the markup percentage is 42.9% (calculated as the markup amount divided by the product cost). To use the preceding example, a markup of $30 from the $70 cost yields the $100 price. Markup is the amount by which the cost of a product is increased in order to derive the selling price. Or, stated as a percentage, the margin percentage is 30% (calculated as the margin divided by sales). For example, if a product sells for $100 and costs $70 to manufacture, its margin is $30. Margin (also known as gross margin) is sales minus the cost of goods sold. More detailed explanations of the margin and markup concepts are noted below. There can also be an inadvertent impact on market share, since excessively high or low prices may be well outside of the prices charged by competitors. A mistake in the use of these terms can lead to price setting that is substantially too high or low, resulting in lost sales or lost profits, respectively. The difference between margin and markup is that margin is sales minus the cost of goods sold, while markup is the the amount by which the cost of a product is increased in order to derive the selling price.
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