The benefit to learning even the slightest amount about finances and bookkeeping is that is puts you far ahead of the average person in the wine business. The two terms that are used incorrectly most often are markup and margin.
I’ve heard them used interchangeably by sales reps, and I’ve heard them mixed up by people in charge of a store’s or restaurant’s profitability. Sadly.
If you can be the one to clarify it for any of them, you become the superstar. It’s fairly simple, but don’t forget these are two entirely different things.
Markup is a multiplier to determine your selling price. If your standard markup is 1.5, then a wine that is brought in for $10 a bottle sells for $15. Pretty straightforward. The problem is that it overstates the profitability. If you start thinking that a 50% markup means a 50% profit then you’re falling down the same trap many do, and this is where margin comes in.
Margin is the profit divided by the sales price. So in our previous example, the wine sells for $15, but you paid $10 for it. A $5 profit divided by $15. Your margin is 33%. The Margin Percentage will always be lower than the Markup Percentage, and it gives you a true representation of your finances.
So to see your sales picture more clearly, look in terms of margin percentages, and don’t be fooled by markup numbers and multipliers. There are formula calculators out there to allow you to work exclusively through margin percentages, and it will spit out your markup formula. Try them out! (On such calculators “revenue” is the final selling price.)
Markup to Margin Chart
15% Markup = 13.0% Margin
20% Markup = 16.7% Margin
25% Markup = 20.0% Margin
30% Markup = 23.0% Margin
40% Markup = 28.6% Margin
50% Markup = 33.0% Margin
75% Markup = 42.9% Margin
100% Markup = 50.0% Margin