How to use this Why Founders Fail: Margin vs Markup calculator
The number one mathematical mistake non-financial founders make is conflating Margin with Markup. They are entirely different mathematical realities. A 100% markup does not mean a 100% margin. In fact, a 100% margin is mathematically impossible unless your cost is exactly 0.
Key Calculation Assumptions
- Calculations assume fixed compounding frequencies unless custom compounding is selected.
- Results do not factor in unannounced statutory tax rate adjustments or customized bank penalty fees.
- Calculations serve educational decision-making and planning purposes.
Frequently Asked Questions (FAQs)
What is Profit Margin?
Profit Margin exclusively looks at Revenue. It asks: 'For every dollar I generate in sales, how much do I get to keep?' The formula is (Profit / Target Selling Price).
What is Cost Markup?
Markup exclusively looks at Cost. It asks: 'How much did I increase the cost price to create the selling price?' The formula is (Profit / Base Cost).
What is a good Profit Margin across industries?
It varies drastically. Software as a Service (SaaS) businesses generally target elite 70-85% gross margins. Hardware and physical retail generally scrape by on 15-30% margins, surviving entirely on tremendous sales volume.