This guide explains the difference between margin and markup—TMS uses markup for pricing, margin for display.
There always seems to be some confusion around the difference between Margin vs Markup. A Markup Percentage and Margin Percentage are both a type of Margin. A Margin is used to describe the difference between a buy and a sell rate.
Margin is calculated by finding the percentage of markup divided by the sell rate.
Formula:
- Buy Rate / (1 - Margin Percentage) = Sell Rate
- Margin Percentage = (Sell Rate - Buy Rate) / Sell Rate
If you would like to add a 25% margin to a shipment that costs $100.00 you would end up with a sell rate of $133.33 and a profit margin of $33.33.
$100 / (1 - .25) = x
$100 / 0.75 = $133.33
Markup is calculated by adding a percentage to a buy rate to calculate a sell rate.
Formula:
- Buy Rate x (1 + Markup Percentage) = Sell Rate
- Markup Percentage = (Sell Rate - Buy Rate) / Buy Rate
If you would like to add a 25% markup to a shipment that costs $100.00 you would end up with a sell rate of $125 and a profit margin of $25
$100 x 1 + 0.25 = x
$100 x 1.25 = $125
How are Margins and Markups used in the TMS?
- When a broker creates a margin for a customer, they are adding in a Markup Percentage and not a TRUE margin.
- When pricing is displayed in the Cost Calculations section of the site, it is using the margin calculation and NOT the markup calculation.
In this example a line-haul of $204.93 was given a 25% markup which nets a 20% margin.
Markup
$247.56 * 1.25 = $309.44 (25% markup, $61.89)
Margin
$61.89 / $309.44 * 100 = 20%
Or
$247.56 / 0.80 = $309.4