Markup Versus Margin
Check percentage bases.
Estimated reading time: 1 minute
A 30% markup does not produce a 30% gross margin.
University of Maine Extension’s retail-pricing guidance distinguishes markup measured against cost from margin measured against selling price.
Choose the denominator
Fictional cost of goods sold: $70 per item. A worksheet targets 30% gross margin, before overhead and other expenses.
Adding 30% to cost gives $70 × 1.30 = $91. Gross profit is $21, but margin is $21 ÷ $91, approximately 23.08%—not 30%.
For the stated margin target, cost must occupy 70% of selling price. Thus price is $70 ÷ 0.70 = $100. Check: ($100 − $70) ÷ $100 = 30%. The corresponding markup is $30 ÷ $70, approximately 42.86%.
If 100 units sell at each alternative price with unchanged unit cost, gross profit is $2,100 versus $3,000: a $900 difference. Equal sales volume is an assumption, not a demand forecast.
Label the percentage base and cost scope. Gross profit still must cover other expenses; neither this target nor the calculation establishes a competitive price or net profit.
