Profit margin vs. markup
Profit margin and markup both compare profit with another amount, but they answer different questions. Gross profit is revenue minus cost. Gross profit margin divides that profit by revenue; markup divides it by cost. Mixing the two can lead to prices that are lower than intended.
Formula and example
profit = revenue − cost; margin % = profit ÷ revenue × 100; markup % = profit ÷ cost × 100. If an item costs $60 and sells for $100, gross profit is $40, margin is 40%, and markup is about 66.7%.
This calculation covers only the revenue and cost figures entered. A gross margin is not the same as net profit: rent, payroll, shipping, marketing, taxes, refunds, payment fees, and other operating costs can reduce final profit. For business decisions, decide which costs belong in the calculation and verify the result against your actual accounting records.
Tips for accurate results
Margin and markup use different bases. Margin is profit divided by selling price, while markup is profit divided by cost. If an item costs $60 and sells for $100, the profit is $40, the margin is 40 percent, and the markup is about 66.7 percent.
Common mistakes and limits
Mixing up margin and markup leads to underpricing. This calculation shows gross figures based on the numbers you enter. Net profit also depends on overhead, taxes, shipping, returns, and payment fees, so include those costs when setting prices.