The Difference Between Margin and Markup in Business
While business owners often confuse the two terms, Margin and Markup represent distinct perspectives of profit:
- Gross Margin looks downward from selling price: it is the portion of total revenue left over after paying cost of goods sold.
- Markup looks upward from cost: it is the percentage increase added onto the base wholesale cost to set the retail selling price.
Mathematical Formulas
| Metric | Formula | Standard Example (Cost = $80, Price = $100) |
|---|---|---|
| Gross Profit | $$\text{Revenue} - \text{Cost}$$ | $100 - $80 = $20 |
| Gross Margin (%) | $$\frac{\text{Gross Profit}}{\text{Revenue}} \times 100$$ | $$\frac{\$20}{\$100} = 20\%$$ |
| Markup (%) | $$\frac{\text{Gross Profit}}{\text{Cost}} \times 100$$ | $$\frac{\$20}{\$80} = 25\%$$ |