Gross Margin vs. Markup: What's the Difference?
Margin measures profit as a percentage of selling price. Markup measures profit as a percentage of cost. They use the same numbers, but they're never the same percentage.
Direct answer
Margin measures profit as a percentage of the selling price. Markup measures profit as a percentage of the cost. They use the same two numbers — cost and profit — but divide by something different, which is why they never match.
Worked example — the same padlock, two answers
| Gross Profit | ₵20 |
| Margin (₵20 ÷ ₵100) | 20% |
| Markup (₵20 ÷ ₵80) | 25% |
A 25% markup does not mean a 25% margin. This is one of the most common pricing mistakes in small retail: a shop owner decides to "mark everything up by 30%," assumes that means a 30% margin, and is short of cash at the end of the month without knowing exactly why.
| Margin | Markup | |
|---|---|---|
| Divides profit by | Selling price | Cost |
| Answers the question | "What share of this sale is profit?" | "How much did I add on top of cost?" |
| Will always be | Lower than markup, for the same sale | Higher than margin, for the same sale |
| Most useful for | Understanding real profitability | Setting a price from a known cost |
Why margin is always lower than markup
Markup divides by the smaller number (cost). Margin divides by the larger number (selling price, which already includes the profit). Dividing the same amount of profit by a bigger number always gives a smaller percentage — so for any profitable sale, margin will always read lower than markup.