Spa Professionals Guild

# PROFIT! Understanding MARK UP and MARGIN.

. The tool is understanding the difference between margin and mark up, and what this means in our Industry.
Salon and Spa owners often confuse margin and mark up, which could be the difference between your business barely surviving and your business thriving! Let’s look at the differences first and then I will share what profit margins you should aim for in your business.
What is MARGIN?
It is all about proportion. Refer to the chart below. Let’s imagine you have an item which costs you 150 and you sell it for 250. Your ‘cost margin’ in this case is 60% and your ‘profit margin’ is 40%. The above is a simple way to illustrate the concept visually, but let’s look at the mathematical equation. Same example as above.
The item costs your business 150 (cost price) and you retail it at 250 (selling price).

SELLING price minus COST PRICE = GROSS PROFIT
THUS:
250 – 150 = 100 GROSS PROFIT

Now, let’s look at calculating the MARGIN.

Simply divide the GROSS PROFIT by the SELLING PRICE

100/250 = 0,40 MARGIN

To make this a percentage you simply multiply by 100

0,40 x 100 = 40% MARGIN

If we use the proportion diagram above to make a conclusion; you keep 40% of the total revenue and 60% is used to buy the product. What is MARK UP?

Markup is simply the difference between COST and RETAIL.

Using the same example as above, let’s calculate the mark up of the same product.

EXAMPLE:

250 – 150 = 100 GROSS PROFIT

Then to get to the mark up, you divide the GROSS PROFIT by the COST PRICE.

100/150 = 0,67 MARK UP

To make this a percentage you simply multiply by 100

0,67 x 100 = 67% MARK UP 1. Don’t make product decisions based on what you think is trendy, what you’re personally passionate about or what everyone is asking for. I know it seems counterintuitive, but hear me out. Make your decision based first and foremost on profitability, as this keeps your business on a growth path.
2. Ensure to ask suppliers the margins on their pricing. Verify both retail products and treatments and double check their calculations for yourself before you make decisions.
3. Phone at least two other salons or spas using similar products and check in on their experience with the supplier. Ask questions about profit and how the products affect the bottom line of their business.

Stay curious and OBSESSED!

Marisa