Understanding the concept
Profit is revenue minus the costs included in the calculation. Gross profit margin compares gross profit with revenue, while markup compares profit with cost.
This lesson uses simple, fixed examples to explain the method. Identify the quantities, choose the correct formula, and check that the units in your answer make sense.
Margin and markup
Gross margin = (selling price − cost) ÷ selling price × 100. Markup = (selling price − cost) ÷ cost × 100.
Write down the original values before substituting numbers. Keep full precision during the calculation and round only when presenting the final result.
Worked example
Question: An item costs $60 and sells for $100. Find its margin and markup.
- Calculate gross profit: 100 − 60 = 40.
- Margin: 40 ÷ 100 × 100 = 40%.
- Markup: 40 ÷ 60 × 100 ≈ 66.67%.
Check the answer against the original question. An answer should include the appropriate unit or percentage where relevant.
Key points to remember
- Margin and markup use different denominators.
- Gross margin does not include every operating expense.
- A profitable sale does not automatically mean a profitable business.
Common mistakes
Calling a 40% margin a 40% markup; these are not interchangeable.
To avoid this, label each number, identify the starting amount and use a quick estimate to see whether the final answer is reasonable.
Try it yourself
A product costs $30 and sells for $50. What is its gross margin?
Show the worked answer
Answer: 40%. Try working through the method above before checking your result.
Margin versus markup
Use this table as a quick reference. Check which quantities and units each method requires before calculating.
| Situation | Method or meaning | Calculation | Result |
|---|---|---|---|
| Revenue | Money received from sales | Sale price $100 | $100 |
| Cost | Cost associated with the sale | Cost $60 | $60 |
| Gross profit | Revenue minus cost | 100 − 60 = 40 | $40 |
| Gross profit margin | Profit divided by revenue | 40 ÷ 100 × 100 = 40 | 40% margin |
More worked examples
Work through each calculation and notice how the method changes with the question.
Example 1: Sell for $250; cost $175
Method: Profit 250 − 175 = 75; margin 75 ÷ 250 × 100 = 30.
Example 2: Cost $40, sell $50
Method: Markup 10 ÷ 40 × 100 = 25; margin 10 ÷ 50 × 100 = 20.
Example 3: Target 25% margin on $60 cost
Method: 60 ÷ (1 − 0.25) = 80.
Using this in everyday life
Gross margin is not the same as net profit. Rent, wages, payment fees, returns, taxes and other expenses can reduce the amount a business actually keeps.
Before you begin: Identify what the question asks, write down the given information, use matching units, then estimate the result to catch mistakes.
Extra practice questions
Try these independently before expanding the answer. Show your working, not just the final number.
Question 1. Cost $70, sell $100: margin?
Show answer and working
(100 − 70) ÷ 100 × 100 = 30.
Answer: 30%
Question 2. Cost $70, sell $100: markup?
Show answer and working
30 ÷ 70 × 100 ≈ 42.86.
Answer: 42.86%
Question 3. Cost $90, sell $120: profit?
Show answer and working
120 − 90 = 30.
Answer: $30
Question 4. Cost $45, target 10% margin: sale price?
Show answer and working
45 ÷ 0.90 = 50.
Answer: $50
Question 5. Sell $200, cost $150: margin?
Show answer and working
50 ÷ 200 × 100 = 25.
Answer: 25%