Margin and markup are not the same number
Two businesses can describe the same product as a “40% margin” and a “67% markup”, and both are right. Margin compares profit with the selling price; markup compares the same profit with the cost. Mixing them up is one of the most common pricing mistakes, so this calculator shows both side by side.
The formulas
- Gross profit = selling price − cost
- Gross margin = gross profit ÷ selling price × 100
- Markup = gross profit ÷ cost × 100
- Price-to-cost multiplier = selling price ÷ cost
Margin can never reach 100%, because profit is always smaller than the price. Markup has no ceiling: a product that costs $10 and sells for $50 has a 400% markup and an 80% margin.
Worked example: cost $60, price $100
- Gross profit: 100 − 60 = $40 per unit.
- Gross margin: 40 ÷ 100 = 40%.
- Markup: 40 ÷ 60 = 66.67%.
- Multiplier: 100 ÷ 60 = 1.667×.
If you sell 250 units, total gross profit is 250 × $40 = $10,000.
How the price moves both ratios
| Price change | Gross margin | Markup | Profit per unit |
|---|---|---|---|
| −20% ($80) | 25.00% | 33.33% | $20 |
| −10% ($90) | 33.33% | 50.00% | $30 |
| current ($100) | 40.00% | 66.67% | $40 |
| +10% ($110) | 45.45% | 83.33% | $50 |
| +20% ($120) | 50.00% | 100.00% | $60 |
A 20% discount halves the profit on each unit here. That is why a sale needs a large jump in volume to pay off.
Which one should you track?
- Margin is what accountants and investors use. Gross margin on an income statement is gross profit divided by revenue, so it adds up neatly across products and years.
- Markup is convenient at the pricing desk: you know the cost, you apply a markup, and you get a price.
Pick one convention for your team and label it every time. A buyer who thinks in markup and a finance lead who thinks in margin can believe they agree on “50%” while being far apart.
Typical gross margins
Grocery retail often works on gross margins of 25–30%, apparel and specialty retail closer to 45–60%, restaurants on roughly 60–70% after food costs, and software well above 70%. Gross margin is only the first layer: rent, payroll, marketing and payment fees still have to come out of it before you see a net profit. A 40% gross margin with 35% operating costs leaves a 5% net margin.
What to include in cost
Use the full landed cost: purchase price, inbound freight, duties and packaging. Leave out overheads such as rent or salaries; those belong in a break-even analysis, not in the gross margin.