# Margin vs Markup: The Definitive Guide for Business Owners

Margin vs markup: Is there a difference? Absolutely.

Margin and markup are two important accounting terms that are used interchangeably by business owners, contractors, employees, consultants, etc., in their accounting but a slight misunderstanding or confusion can have a drastic impact on your bottom line.

Being a small business owner, itâ€™s important to know the difference between margins and markups. Letâ€™s start with the fundamentals:

**Margin**is also called Profit Margin or Gross Margin or Gross Profit.**Revenue**: Income earned from providing services and selling products.**Cost of goods sold**: An accumulated total of all costs used to create a product or service, which has been sold. Includes material, labor costs, freight and shipping charges, etc.

**Margin**

### Definition of Margin

Margin or Gross Margin or Gross Profit is defined as revenues minus the cost of goods sold (COGS).

For best practices, you can use the term Gross Profit when you are referring to the monetary amount and Gross Margin when referring to a percentage or ratio.

**How to Calculate Margin**

If your company sells cameras for $3000 each and costs $1000 to manufacture, the gross profit would be $2000.

**Revenue ($3000) â€“ COGS ($1000) = Gross Profit ($2000)**

The Gross Â Margin Ratio would be 0.66%, calculated as Gross Profit divided by the revenue.

**Gross Profit ($2000) / Revenue ($3000) = Gross Margin Ratio (0.66)**

Multiple the Gross Margin Ratio by 100 to make it percentage:

**0.66 X 100 = 66% Margin**

### Gross Margin Formula:

### Margin Calculator

Use this simple calculator for calculating GP or Gross Margin:

## Markup

**Definition of Markup**

MarkupÂ is defined as the ratio between the cost of a good or service and its selling price. TheÂ markupÂ amount may be expressed as a percentage.

**How to Calculate Markup **

By using the same example from above, the Gross Profit was $2000.

**Revenue ($3000) â€“ COGS ($1000) = Gross Profit ($2000)**

The Markup can be calculated by dividing the Gross Profit by Cost of Goods Sold.

**Gross Profit ($2000) / COGS ($1000) = Gross Markup Ratio (2)**

Multiple the Markup Ratio by 100 to make it percentage:

**2 X 100 = 200% Markup**

### Markup Formula

### Markup Calculator

Use this simple calculator for calculating Markup:

**Margin vs Markup Chart**

15% Markup = 13.0% Gross Profit

20% Markup = 16.7% Gross Profit

25% Markup = 20.0% Gross Profit

30% Markup = 23.0% Gross Profit

33.3% Markup = 25.0% Gross Profit

40% Markup = 28.6% Gross Profit

43% Markup = 30.0% Gross Profit

50% Markup = 33.0% Gross Profit

75% Markup = 42.9% Gross Profit

100% Markup = 50.0% Gross Profit