Profit Evaluation Method (Markup vs. Margin)
You can evaluate profit (the difference between the average cost and the selling price) on goods and services using either a Markup or Margin — methods Sage 50 Accounting uses to evaluate the percentage of profit on your inventory and service items. If you're not sure which to use, you can ask your accountant which profit-evaluation method is most common for your type of business.
Items:
- If you choose markup, the program evaluates the profit as a percentage of an inventory item's original cost. For example, if the item costs $8.00 and you are selling it for $10.00, the markup is 25 % or $2.00 profit/$8.00 costs = 25%)
- If you choose margin, the program evaluates the profit as a percentage of an item's selling price. Using the same example, the margin is 20 percent ($2.00 profit/$10.00 selling price = 20% margin).
Services:
- If you choose markup, the program evaluates the profit as a percentage of the service's billable rate. For example, if you pay the service provider a rate of $20.00 per hour for painting, and charge the client $30.00/hr, the markup is 50% ($10 profit/$20.00 cost = 50%).
- If you choose margin, the program evaluates the profit as a percentage of the service's total selling price. Using the same example, the margin is 30 percent ($10.00 profit/$30.00 selling price = 30%)