Free Markup vs Profit Margin

Two Sides of the Same Coin

While often used interchangeably by retail novices, "markup" and "margin" represent two distinct ways of looking at profit. Confusing the two can lead to catastrophic pricing errors, either leaving money on the table or incorrectly forecasting profitability.

Margin: Profit as a Percentage of Selling Price

Margin (specifically Gross Margin) is sales minus the cost of goods sold, divided by the sales revenue. If a product costs $50 and you sell it for $100, the profit is $50. The margin is ($50 / $100) = 50%. Margin tells you how much of every revenue dollar you keep.

Markup: Profit as a Percentage of Cost

Markup is the ratio of profit to the cost of the good. Using the same example, if a product costs $50 and you sell it for $100, the profit is $50. The markup is ($50 / $50) = 100%. Therefore, a 100% markup creates a 50% margin. When you calculate gross profit amortization markup variables locally, ensuring you are using the correct mathematical basis for your pricing strategy is vital.