Markup and gross margin both measure the relationship between cost and price — but they use different denominators, which means they produce different percentages for the same transaction.
The Formulas Side by Side
Markup = (Price - Cost) / Cost × 100
Gross Margin = (Price - Cost) / Price × 100
A Concrete Example
Product cost: $40. Selling price: $100.
- Gross profit: $60
- Markup: $60 ÷ $40 = 150%
- Gross margin: $60 ÷ $100 = 60%
Same product, two very different percentages.
Why This Matters in Practice
A business owner who wants a "50% margin" and mistakenly applies a 50% markup will sell at $60 instead of $80 — leaving 33% of intended margin on the table. This is one of the most common systematic pricing errors in small businesses.
Quick Conversion Formulas
Margin = Markup / (100 + Markup) × 100
Markup = Margin / (100 - Margin) × 100
For example: a 100% markup = 50% margin. A 50% margin = 100% markup.