Markup vs Margin
OR
Markup vs. Gross Margin: What's the Difference?
Business owners often confuse Markup and Margin. While both deal with profit, they represent different percentages. Getting this wrong can lead to underpricing your products.
Definitions
Markup: Profit as a percentage of Cost.
Markup % = (Profit / Cost) × 100
Margin (Gross Margin): Profit as a percentage of Selling Price.
Margin % = (Profit / Revenue) × 100
Example
You buy a shirt for $50 and sell it for $100.
- Profit = $50
- Markup = ($50 / $50) = 100%
- Margin = ($50 / $100) = 50%
Key Takeaway: Margin is always lower than Markup.
FAQ
Which one should I use?
Retailers typically use Markup to set prices. Investors and accountants look at Gross Margin to assess company health.