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Understanding the difference between margin and markup is essential for accurately calculating pricing and profit in ProLine. This article explains these concepts and demonstrates how ProLine uses margin to ensure your pricing strategies are effective and your business remains profitable.
Margin vs. Markup
Margin and markup are two distinct methods used to determine pricing, and confusing them can lead to significant financial miscalculations. While both methods involve percentages, they are applied differently:
Markup is calculated on the original cost of an item.
Margin is based on the final selling price.
Markup:
Looks at the starting cost.
Adds a percentage of the cost to determine the final price.
For example, if an item costs $100 and you apply a 35% markup, the final price would be $135 ($100 + $35).
Margin:
Focuses on the final selling price.
Determines what percentage of the final price should be profit.
For the same item costing $100, with a 35% margin, the final price would be approximately $153.85. This is because $53.85 is 35% of $153.85, ensuring the profit margin is correctly applied.
How ProLine Calculates Pricing
ProLine uses the margin method to calculate final pricing, ensuring your profit is based on the final price, not just the cost.
Starting Cost: The initial cost of the item.
Vendor Tax: Any tax associated with the vendor, added to the cost.
Margin Calculation: The main margin specified in your quote settings is applied to the total cost (cost + vendor tax).
Secondary Margin: If enabled, an additional margin for card fees with the cash discount is added on top of the main margin.
Final Price: The resulting amount after all margins and taxes are applied.
Steps to Calculate Final Price in ProLine:
Add Vendor Tax:
Example: If the cost is $100 and the vendor tax is $10, the combined cost is $110.
Apply Main Margin:
Example: With a 35% margin on $110, the profit should be 35% of the final price. This would make the final price approximately $169.23.
Apply Secondary Margin:
Example: If a secondary margin of 3.2% is applied, it is calculated on the total including the main margin. The final price will be adjusted accordingly.
Add Service Tax:
Example: If service tax is 10%, it is applied as a markup on the final price before tax. This ensures the tax is calculated correctly on the total amount.
Examples of Margin and Markup Calculations
Example 1: Basic Margin Calculation:
Cost: $100
Main Margin: 35%
Final Price: $153.85
Calculation: $100 / (1 - 0.35) = $153.85
Example 2: Including Vendor Tax and Secondary Margin:
Cost: $100
Vendor Tax: $10
Combined Cost: $110
Main Margin: 35%
Secondary Margin: 3.2%
Final Price:
Apply 35% margin on $110 = $169.23
Apply 3.2% secondary margin on $169.23 = $174.65
Example 3: Service Tax Application:
Final Price Before Tax: $174.65
Service Tax: 10%
Total After Tax:
Calculation: $174.65 * 1.10 = $192.12
Contact Support
If you encounter difficulties or have further questions, contact our support team at support@proline.app or through the chat in the lower corner of your screen. We're here to help you with any issues or concerns.