Same profit, different denominator
Gross profit in these examples is selling price less the stated cost. Margin divides that profit by selling price. Markup divides it by cost, so the two percentages need not match.
| Cost | Selling price | Margin | Markup |
|---|---|---|---|
| $50 | $75 | 33.3% | 50% |
| $50 | $100 | 50% | 100% |
| $80 | $120 | 33.3% | 50% |
| $100 | $150 | 33.3% | 50% |
Keep the cost and price on a consistent GST basis. The table does not automatically include advertising, payment fees, returns, rent or wages; any excluded expenses can reduce the amount retained by the business.
Read the $80 cost / $120 price row
The gross profit is $120 − $80 = $40. Margin is $40 ÷ $120 × 100 = 33.3% when rounded to one decimal place. Markup is $40 ÷ $80 × 100 = 50%. Both percentages describe the same $40 profit.
Do not swap a margin target for a markup
A 50% markup on $80 produces a $120 price, not a 50% margin. To obtain a 50% margin on the same stated cost before other expenses, the required price is $80 ÷ (1 − 0.50) = $160.
Frequently asked questions
Does 50% markup mean I keep half of the selling price?
No. Markup uses cost as its denominator. At an $80 cost and $120 price, the $40 gross profit is one-third of revenue.
Is the chart showing net business profit?
No. It shows gross profit relative to the stated cost. Other business expenses may still need to be deducted.