Discount Rate is not Markup Rate. Why?

Discount rate is not markup rate. To understand the difference between both rates, try answering the below two questions without thinking much about it.

1. What is the discount rate from RM6 to RM3?
2. What is the markup rate from RM3 to RM6?

I have asked these questions to my close friends and the majority of them reply 50% for both questions.  Some even said 150%. So, what is the correct answer? To answer that, let’s look at the formula:

Discount/Markup Rate = ((New Price – Old Price) / Old Price) * 100%

Question 1:

Discount Rate = ((RM3 – RM6) / RM6) * 100% = -50%

Instead of saying -50%, we usually say “Discount” 50%.

Question 2:

Markup Rate = ((RM6 – RM3) / RM3) * 100% = 100%

The markup rate or price increased by 100%

Noticed the discount and markup rate are different even though the new and old price are fixed at RM3 and RM6. Moreover, the markup rate is higher than the discount rate. Below is a simple table on the corresponding markup rate based on the discount rate.

Discount RateMarkup Rate

This explains why people love to shop during a discount period. Say an item is being sold at 50% below its original price. If you were to buy it during the discount period, you get to save 50%. If you missed and buy the same item after the discount period, technically you are paying extra 100% compared to the discount price.

The usual misconception is discount and markup rates are the same. As shown above, they are not. This understanding is crucial when it comes to investing which will be covered in my next post.