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Use one consistent currency. Defaults are illustrative assumptions, not typical business figures.
Formula and assumptions
Gross profit = price − cost. Markup (%) = gross profit ÷ cost × 100. Gross margin (%) = gross profit ÷ price × 100. A percentage with a zero denominator is undefined.
Use consistent cost definitions and exclude sales taxes from both inputs. Gross profit is before other overhead, financing costs and taxes; it is not net profit.
Worked example — illustrative only
Illustrative assumptions: a $60 cost and $100 price give $40 gross profit, 66.67% markup and 40% gross margin.
Frequently asked questions
Why are margin and markup different?
They divide the same gross profit by different bases: margin uses selling price, while markup uses cost.
Can the result be negative?
Yes. If selling price is below cost, gross profit and the applicable percentages are negative. At zero cost or price, the corresponding percentage is undefined.