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December 19, 2007

What is the difference between gross margin and markup?

Gross margin or gross profit is defined as sales minus cost of goods sold. If a retailer sells a product for $10 which had a cost of $8, the gross profit or gross margin is $2. The gross profit ratio or the gross margin ratio expresses the gross profit or gross margin amount as a percentage of sales. In our example the gross margin ratio is 20% ($2 divided by $10).

Markup is used several ways. Some retailers use markup to mean the difference between a product’s cost and its selling price. In our example, the product had a cost of $8 and it had a markup of $2 resulting in a selling price of $10. The $2 markup is the same as the $2 gross profit. However, the markup percentage is often expressed as a percentage of cost. In our example the $2 markup is divided by the cost of $8 resulting in a markup of 25%. (Some retailers may use the term markup to mean the increase in the original selling. For example, if the $10 selling price was increased to $11 because of high demand and limited supply, they would say the markup was $1.)

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Comments

8 Responses to “What is the difference between gross margin and markup?”

  1. David Boyce on January 3rd, 2008 12:05 am

    I only have a short time to get some basics down well. Which topics are most likely to be useful?

  2. Hamid Noori on January 3rd, 2008 12:18 am

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    All the topics i receive are useful and help me alot.
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    Hamid Noori
    ACCA/ CAT Finalist

  3. sethu on January 22nd, 2008 6:00 am

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  4. gul on June 26th, 2008 12:53 pm

    Respectable Sir/Madam

    I appreciate your cooperation.Your material is very good and also the way that you are explaining in detail and with examples.So,i must say again i appreciate your good services.

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  5. Simeon Bali on September 5th, 2008 3:28 am

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  6. Victor on September 17th, 2008 8:11 am

    I must commend you for the very down-to-earth explanations given to the various accounting topics. I wish to state that by making many feel fulfilled through your coaching effort, God will increase your wealth in Jesus name. Amen!

  7. kagoma on May 11th, 2009 3:14 am

    will be happy if you regurarly send fianace an accounting up date
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  8. Bradford on June 5th, 2009 5:28 pm

    #
    Bradford
    Posted June 5, 2009 at 5:00 pm

    I had learned that until you get to 50% mark up that the following formula Works:

    Example: $5.00 Divided (\) .70 And/or 30% = $7.1429 Mercantile Markup.

    Now to double check for those who refute this formula:

    $7.1429
    - 30%
    _______
    Subtotal= (-) $2.1129 = Your Original $5.00

    .99=1%
    .98=2%
    .97=3%
    .96=4%
    .95-5% And So Until Your Reach .51=49% When you go beyond .50 The formula changes. Soooooooo, What Would You Do Beyond .50 ? LOL Having fun yet? Does anyone have any additional input besides and beyond?

    Kindest Regards,

    Brad Agape1another@gmail.com

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