---

Quick answer in words (requested from the comments)
Margin = The comparison between your selling price (100%) and your profit
Markup = The comparison between your cost price (100%) and your profit

---

Every time we get a new member of staff I have to teach them how to work out margins and mark ups. This page is here so I don’t have to explain it from scratch for the next new person.

Whats a mark up & whats a margin?

They are terms given to the way a business works out how much money it will make or has made on a product. Its the difference between the buying price and the selling price as a percentage.

Mark ups and margins are all about percentages. Despite learning percentages at school everyone seems to have forgotten them by the time they get to work, so lets start at the beginning:

What is a percentage?

Percentages are away of comparing different values using a ratio. I think it comes from the French phrase ”Per Cent” meaning “per hundred”
Example time
It you have a 100ml jar that is full (100ml) it is at 100% capacity and 100% of its volume. If it is only half full (50ml) it is at 50% capacity and 50% of its volume. Easy so far.
You choose where your 100% begins and thats where many people start to get confused. Lets say I wanted to put a chemical in my jar and the safe maximum level was 50ml. It I fill the jar to 50ml it is now at 100% capacity. It l over fill it to 75ml it is now at 150% of its safe capacity yet at the same time only 75% of its volume.

How do we work that out?

1. throw away your Calculators % button. It is only there to confuse you!
2. Start with 100 and divide it by your unit of measure that is 100%.In the above chemical jar example 100% safe capacity was 50ml So 100 / 50 = 2
3. Multiply by the actual unit of measure you have. In the example above, our overfilled jar held 75ml so 75 * 2 = 150, which is your answer as a percentage, the chemical jar was at 150% of its safe capacity.

Now we know about percentages, let’s apply that to mark-ups and margins

To do this I first want to tell you percentages best kept secret!
100% of 1 is 1.
50% of 1 is 0.5.
So to turn a % into a decimal just move the point two places to the left
75% becomes 0.75,
62.5% becomes 0.625
(or if you get very scared by not using the calculator, just divide by 100. 100 / 100 =1 , 50 / 100 = 0.5, 75 / 100 = 0.75)

Mark ups and margins are all based around percentages.
Lets start with a mark up calculation.
You are given a buying price (50) and told to mark up by 50%

50 * 0.5 = 25 euros
Add them together 50 + 25 = 75

Lets try that with Britains most popular mark up, VAT (Value Added Tax for my friendly non British readers). VAT is (at the time of writing) 17.5% added to the selling price of many products and handed to the government to pay for part of running the country.

17.5% as a decimal is 0.175
50 * 0.175 = 8.75
Add them together 50 + 8.75 = 58.75

It gets better though, if you want to know only the total including vat you can take a shortcut. 100% = 1, 17.5% = 0.175, added together 1.175, so
50 * 1.175 = 58.75
In other words, our total including the VAT mark up is 117.5% of our starting point. Our starting point is the price without the vat (100%).

One more example then, 66 + a 50% markup in one go:
66 * 1.50 = 99.

What about taking off a markup? Lets say you’ve been given a book of retail prices including VAT and you have to load them onto a computer without VAT. It’s simple when you remember the VAT total is 117.5% because division ( key: / )is the opposite of multiplication ( key: * ). Note, on your calculator it looks like .

58.75/1.175 = 50

Remove our 50% mark up
99/1.5 = 66

Be careful! This only works when you have more than 100% to begin with. Eg, you cannot do 99/.5 to find out what the 50% was, 99/.5 = 198!

So, with a mark up our starting figure (eg cost) is 100%. You can have a markup of any value, eg 300%

Now for margins

With a margin our ENDING figure is 100%. You can never have a margin equal or greater than 100%

Sometimes you’ll be given a selling price (eg recommended retail price, RRP) if you have 33% margin, what price do you put on your purchase order? (in this case, margin is our profit).

50×0.33= 16.50
Which is our profit, so 50 – 16.50 = 33.50 Our buyingprice

Again we can shortcut this to find our cost price. If we know that if 33% is our margin then 67% must be our buying price, so 50×0.67 = 33.50

What about when we have a buying price. A margin of 33% and we need to knew the selling price?
We know that if our margin is 33%, our cost must be 67% (our selling price with a margin calculation must always be 100% so 100% – 33% profit margin = 67% for the cost).
We can divide our cost price by the cost percentage to return to 100% selling price, eg:
33.50 is 67% of our 100% total, so
33.50 / 0.67 = 50

Still with me on this?

Lets try comparing some mark ups and margins and see what happens.
A sales rep once said to me “You’ll make more selling my product because the price list I give you has a 50% profit; everyone else is using 40%.”
The trouble is he was talking about profit as a mark up calculation in his book and everyone else was talking in margins.
A £75 product in his book had a profit of £25

(Using mark up: selling price = 150% of cost price, cost price = 100%, so £75 / 1.50 = £50 cost, therefore £25 profit).

A £75 product in everyone elses book had a margin of £30

(Using margin: selling price = 100%, margin = 40%, therefore £75 * 0.4 = £30 profit)

So, a 40% margin is better than a 50% mark up.

Heres one for people who arent in business.

Have you ever been tempted by the banners proclaiming “Sale prices – Well pay the 17.5% VAT”? Great! A 17.5% discount. right?
Thats what the marketing department want you to think, but as you now know, VAT is a markup calculation so to arrive at the excluding VAT price you DO NOT deduct 17.5%. Lets work out what the real discount is, assuming our 2 fictitious bargains are £100 for the Kanga and £117.50 for the Roo respectively, including VAT. Lets remove the VAT the right and wrong way.

A VAT inclusive price is 117.5% of our original price, so:
Kanga: £100 / 1.175 = £85.11
Roo: £117.50 / 1.175 = £100.00
are the correct after VAT removed prices.

Lets assume the marketing department sent the wrong poster to be printed:
“Save 17.5%, buy our Kanga and Roo today” it proclaimed.
17.5% as a decimal is 0.175 (simply move the decimal two places like we said earlier)
Kanga: £100 * 0.175 = £17.50 discount = £82.50 left to pay
Roo: £117.50 * 0.175 = £20.56 discount = £96.94 left to pay

Thats right, if the sign proclaims you save 17.5% – it’s wrong, you actually save
(working this out using the same process as above so you see how it works again):

1. throw away your calculators % button. It is only there to confuse you!
2. Start with 100 and divide it by your unit of measure that is 100%. In the above, 100% of the VAT inclusive price was 100 for Kanga So 100 / 100 = 1
3. Multiply by the actual unit of measure you have. In the example above, our after VAT price is 85.11 so 85.11 * 1 = 85.11

We know 85.11% is our before VAT price, so VAT content was 100% – 85.11% = 14.89%

I guess Save 14.89%, buy our Kanga and Roo today just doesnt have the same ring on a poster.

By the way, if you’re wondering why i used $ instead of £, I wrote most of this entry on a Coach travelling through france and it was simply quicker to write on my PDA 🙂  Corrected!

So far my experiments with sipgate VoIP have been good. The next step has been to buy an adapter that will convert our home phone into a VoIP phone. There are two reasons for this. Firstly, the sipgate softphone is fine for me when I’m using my laptop but it doesn’t have the same convenience of picking up a phone and dialing. Secondly, we make quite a few calls between the family (my house, mums house and the office) and all those calls soon add up. If VoIP works, we should be able to call each other for free (or at least no more than the one off hardware costs).

Just making and receiving VoIP calls isn’t the whole objective though, I need our home phone to continue to ring on our home phone number. We’re still keeping the line (it’s our broadband connection too) and many of our friends know to reach us on this number. So, I wanted to use VoIP when it works for us, and our traditional line if ever it doesn’t.

This is where choosing the right adapter comes in. I had to find an adapter that had an FXS port, and FXO port and an ethernet port. What do all these acronyms mean?

• **update – read Gareth’s comment below!**
• Your normal analog phone plugs into an FXO port (eg the BT Plug on the wall) You could think of the O meaning ‘office phone system’ if you like, or perhaps ‘O’h what a big phone company.
• The BT Plug on the wall can only be connected to FXS equipment, that is your regular phone. You could think of FX’S’ as ‘S’imply my desk phone or ‘S’ubscriber/customer to the networks plug on the wall
• I didn’t mention it earlier, VoIP = Voice over Internet Protocol if you didn’t already know
• and SIP = Session Interaction Protocol, which is one method for VoIP to work, much the same as you can send a letter in a white envelope or a brown envelope and it’s still a letter, you can SIP or you can Skype and it’s still a VoIP call

I needed an adapter that had both an FXO port (so I could plug our regular phone into it) as well as an FXS port (so the adapter could be plugged into the wall like a normal phone).
Via the Ethernet cable it gets plugged into our home network (and onto broadband internet via our home router). The adapter has to log into the SIP service (sipgate in my case) so that it can receive calls over VoIP. You’ll notice that from my earlier post I now appear to be online( ) all the time. That’s because our home phone is logged into sipgate ready for the next call.

Anyway, onto which adapter I chose.
I found a linksys SPA3102 which had all the required features. It’s the latest incarnation of devices from a company once called Sipura who specialise in Voice of IP products. Sipura were bought by Cisco (Cisco are big in business networks, Linksys is their lower end home/small office brand of networking equipment) and are now a part of Linksys. Most importantly I could find users with some experience of the linksys/sipura devices amongst various forums. Although lots were having problems and there seemed to be a fair few needing to do or waiting for firmware updates, many of the replies were giving solutions. I am always more worried when there is a a lack of forum/troubleshooting activity than I am to see it, I don’t like being at the leading edge of technology any more than I have to and forum activity shows a product is being well used. It was also within my budget (free wasn’t an option, but the 50 price tag was close enough for me to give it a whirl). Being part of the huge Cisco corporation probably isn’t a bad thing either, at least I can have an expectation that the device will be around and supported for a while.

I consider myself a pretty network savvy person but this little grey box (photo at the top) had me confused for several hours.

• Step 1: open the box, gasp in awe at the simple instructions.
• Step 2: plug the provided wire from SPA3102 into phone, plug original phone wire from SPA3102 into BT wall outlet (well, actually, the broadband filter but let’s not get picky).
• Step 3: wonder why there is no dial tone and nothing happens.
• Step 4: decide it must need to be enabled from within the web interface. The next problem was entirely of my own making. I departed from the instructions. The device has TWO ethernet ports. one for “internet” one for “computer”. Now, if I had a cable modem that presented an ethernet port as it’s connection to the world I could probably follow this part, but I, along with many others have ADSL and a wireless router. I plugged the “internet” part into my router and didn’t bother moving my PC’s ethernet wire from the router to go via the SPA3102. I couldn’t connect to the web interface, I couldn’t hear any dial tone on the phone (the instruction said I could configure things through a voice menu). I could see the unit had collected it’s IP address from my router but I just couldn’t connect.
• Step 5: Decide to read the instructions and do it the strange way. Web configuration now working! Realisation now dawns, it’s not strange at all, the device has a firewall and can only be configured from it’s LAN side, not the Internet WAN side. It doesn’t know that it is already behind a firewall router so the creators took the sensible approach of making it be configured only from it’s own Ethernet side. It looks like
• Step 6: Lesson learnt, now how to configure it so i get a dial tone…
• Step 7: Realisation dawns that it is already configured to give the regular phone a dial tone. I don’t hear a dial tone…. “Houston, I have a problem”. Is the unit faulty? Not likely, electronics are pretty good in my experience, it’s normally something obvious… like the wire. Unplug everything and look very closely… yes, it’s the wire! The wire they provided is an RJ11 plug. It’s a small squareish plug with 4 wires, or at least 4 slots where wires can connect. Except telephones only use 2 wires. My old cordless dect phone (a couple of years old BT Freelance XD 500 as it happens) uses the outside two slots of the connector. The SPA3102 uses the inner two slots. Ho hum, off to the web to order 9 worth of wire adapters, most of the cost made up from carriage (BT to RJ11 so the phone can use it’s own wire to plug into the SPA3102, and an RJ11 to BT so I could plug the SPA3102’s supplied wire into phone line).
• Step 8: The instructions at this point became very vague. Well, actually, they didn’t exist (note to self, never again gasp in awe when technical instructions look simple). I had to log on to the Linksys web site to find answers of how to do things. As the device needs broadband to work, that’s not so big a deal but it would have been nice to have a PDF manual or at least where to go for a PDF manual.

On the plus side, the device is cleverer than I thought. It let’s me:

1. Receive a POTS (Plain old Telephone system) call – and ring my regular phone.
2. Receive a VoIP call – and ring my regular phone
3. Make a VoIP call – once configured
4. Make a POTS call – once configured (I made it so we have to dial #9 to get the regular phone line for calling, VoIP is cheaper but POTS has tried and tested reliability)
5. Receive a POTS call – forward it to another VoIP destination
6. Receive a VoIP call – forward it to another POTS destination

There are hundreds of settings on this thing, but very little documentation. Without the Linksys web site I would have never been able to guess how to configure the dial string (so we dial #9 then phone number for POTS call).

So, was it worth the 50 (+ wire adapters!)? Yes. I just wish they’d made the instructions more available.

Next stage of my VoIP experiments, finish making our new Avaya IP Office 500 phone system work as a SIP endpoint