In our work with both export and domestic wine and spirit brands, we commonly find clients are confused by the difference between “Markup” vs. “Margin.”
Understanding the difference is absolutely crucial to managing business in the U.S., and this is particularly true in the case of the U.S. Three Tier System where a mistake will be compounded at each level.
Markup is defined as the difference between the gross profit and cost. This can be expressed as an absolute number, or as a percentage by dividing the gross profit by the COGS (Cost of Goods Sold)
Markup is most useful for examining how much actual profit is made on each sale.
Margin is defined as sales minus the cost of goods sold. To express it in percentage terms, divide gross profit by revenue and multiply by 100.
Margin is most useful for helping ensure that a sale generates a profit.
Here’s a handy chart to use as a reference