Profit margin vs markup
Margin is gross profit as a share of the selling price; markup is gross profit as a share of cost. With positive profit they produce different percentages: a 50% markup produces a 33.3% gross margin. At break-even, both are zero.
The Profit Margin Calculator shows both figures side by side so the two cannot be confused. Profit Margin Calculator
The same trade, two numbers
Buy for sixty, sell for a hundred. Your profit is forty. As a share of the hundred you charged, that is a forty per cent margin. As a share of the sixty you spent, it is a sixty seven per cent markup. Same transaction, same profit, two very different percentages.
The danger is planning around the wrong denominator. On a cost of 100, a 50% markup gives a price of 150 and profit of 50. That is a 33.3% gross margin, 16.7 percentage points below a 50% margin target.
Which one to use
Use gross margin to compare gross profit with sales revenue. Use markup when starting with a known unit cost to set a proposed price. Neither alone tells you net profit: rent, wages, delivery and other operating costs still matter.
Questions people ask next
How do I convert markup to margin?
Divide the markup by one plus the markup. A fifty per cent markup is 0.5 divided by 1.5, which is 33.3 per cent margin.
What is a good margin?
There is no universal target. Compare like-for-like businesses and include all relevant costs before deciding whether a margin can support your operating expenses.