Free calculator that shows both numbers side by side, plus what your profit actually is on every sale.
Gross profit per unit
$40.00
Gross margin
61.5%
Markup on cost
160.0%
| Line | Amount | As % of price |
|---|---|---|
| Revenue | $65.00 | 100.0% |
| Cost of goods | −$25.00 | 38.5% |
| Gross profit | $40.00 | 61.5% |
Both describe the same profit, but they measure it against different things. Markup divides by your cost. Margin divides by your selling price. Because the denominators differ, the two numbers always diverge, and the gap grows as your margin rises.
A 40% markup sounds healthy. It is actually a 28.6% margin, because you are measuring the profit against the larger number. This is the single most common pricing mistake small businesses make: they quote a healthy-sounding markup and then discover their real margin cannot cover overhead.
| Markup on cost | Gross margin | What it means |
|---|---|---|
| 25% | 20.0% | Very thin, rarely sustainable |
| 40% | 28.6% | Common retail baseline |
| 50% | 33.3% | Healthy distribution business |
| 100% | 50.0% | Doubling cost, standard in services |
| 200% | 66.7% | Strong services or software |
| 300% | 75.0% | Very high, rare in goods resale |
To convert between them:
So if you need a 30% gross margin to survive your overhead, you have to quote a 42.9% markup. That is the number most people forget to check before they raise a price.
Compare against your own sector, not against the average of all businesses. A 35% margin is strong for a distributor and weak for a contractor.
| Industry | Typical gross margin | Note |
|---|---|---|
| Software / SaaS | 70–85% | Low marginal cost per user |
| Professional services | 60–80% | Labor is the main cost |
| Agency / marketing | 50–70% | Watch contractor pass-through cost |
| Foodservice / restaurant | 25–40% | Rent and labor dominate |
| Construction trades | 15–30% | Gross looks low, net often healthy |
| Retail | 25–45% | Occupancy is the main rent |
| Wholesale / distribution | 10–25% | Volume business, thin per unit |
Markup is calculated on your cost: markup = (price − cost) ÷ cost. Margin is calculated on your revenue: margin = (price − cost) ÷ price. The same product can carry a 40% markup and only a 28.6% margin. Markup is the number most people use when quoting a price. Margin is the number your financial statements, lenders, and buyers actually evaluate.
Divide the markup by one plus the markup. A 40% markup becomes 28.6%, a 100% markup becomes 50%, a 200% markup becomes 66.7%. Going the other way, divide the target margin by one minus the margin: a 30% target margin needs a 42.9% markup.
Use markup when you set prices from cost, because it is intuitive for most products and services. Use margin when you are testing whether a price survives your overhead, or when you are comparing yourself to a competitor, because margin decides whether a sale is profitable at all. In practice you need both: markup to set the price, margin to check whether that price is safe.
No. A high markup on a slow-moving product can produce less total profit than a modest markup on something you sell ten times as often. Gross margin tells you about the health of a single sale. Turnover and volume determine whether that health becomes an actual income.
Include the direct cost of delivering the work: contractor labor you pay for, materials, subcontractor invoices, cloud and software you use per project, and travel specific to a job. Do not include rent, salaries of permanent staff, or general admin, because those belong in operating expenses. Mixing the two is what makes service businesses misjudge their margins.
It depends on how you report. Many small businesses put packaging into cost of goods and shipping into operating expenses. Others fold both into cost of goods. Pick one method, apply it consistently, and write it down, because mixing the two makes your margins incomparable over time.