Profit Margin vs. Markup: The Core Differences
Profit margin and markup are two closely related financial metrics used to evaluate business profitability. Both calculations use the same absolute dollar amount of Gross Profit (Revenue minus Cost), but they measure it relative to different financial baselines.
Profit Margin calculates gross profit relative to the Selling Price (Revenue). It measures how much of each dollar of sales the business actually keeps as profit after paying for the cost of goods sold (COGS).
Markup calculates gross profit relative to the Wholesale Cost. It measures the percentage premium added to the acquisition cost of a product to determine its final retail selling price.
Understanding both metrics is essential: margin tells you what percentage of sales is profit, while markup tells you how much to add to cost to set your retail pricing.