Gross margin versus markup: what is the difference?
Published · By Kiva Analytics
Gross margin measures gross profit as a percentage of revenue. Markup measures gross profit as a percentage of cost. They use different denominators and should not be used interchangeably.
Gross margin formula
Gross margin = (Revenue − Cost of goods sold) ÷ Revenue × 100
Markup formula
Markup = (Revenue − Cost of goods sold) ÷ Cost of goods sold × 100
Example
If a product sells for €100 and its cost of goods sold is €60, gross profit is €40. Gross margin is 40%, while markup is approximately 66.7%.
Why the distinction matters
Confusing margin with markup can produce pricing errors. Gross margin also does not represent net profit because operating expenses and other relevant charges have not been deducted.
How Kiva can help
We help businesses define and report profitability measures consistently across products, customers and locations.