1. Earlier we have gone thru the gross profit margin where the formula is :

Gross Profit   x 100%

Total Sales

• Markups formula is slightly different:

Gross Profit   x 100%

COGS

• Margins and markups interact in a predictable way. Each markup relates to a specific margin and vice versa. Markups are always higher than their corresponding margins.
• The BIG question now, which is the best to use? Or how do you know which one to express or use at a given time? 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. 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.
• Here’s my 2cents;
• Markup is good for startups because, as you are getting things set up, you are keenly aware of the costs for your business, and you’re still learning about the kind of revenue you can bring in through sales. As you get to know your business better and you start to look at reports on your sales, margin can be helpful for examining how much actual profit you’re making on each sale.
• Defining your markup as a percentage above cost ensures that you continue to earn revenue on sales as costs increase, but it also means that you don’t have to keep automatically going back to adjust your pricing. Manually adjusting your prices based on cost is plausible for a smaller business, but this quickly becomes untenable as your inventory expands to include hundreds of items.

Next we shall talk a little bit on Balance Sheet KPI.