Key formula
What is margin?
Gross margin measures the share of selling price left after subtracting the direct cost of the product or service. It is not necessarily net business profit because additional expenses may apply.
What is markup?
Markup describes the percentage added on top of cost. It uses the same cost and price inputs, but the denominator is cost rather than selling price.
Worked example
You buy an item for $80 and sell it for $100. The gross difference is $20. Margin is $20 ÷ $100 = 20%.
Markup is $20 ÷ $80 = 25%. A 20% margin does not mean a 20% markup, even though both describe the same transaction.
Pricing for a target margin
To target a 30% gross margin, price = cost ÷ (1 − 0.30). A product costing $70 would need a selling price of $100.
Remember to account for other expenses, taxes and risk before issuing a quote. This educational example is not a substitute for professional accounting advice.
Educational content: verify the conditions of your real situation before relying on the result.