Gross profit versus markup is two ways to calculate how much a company earns from selling its products or services. We usually ask two types of questions: How much income did the company gain from selling its product or services? How much does it cost them to get that income? Gross profit and markup are two means to answer those questions.
What is the gross profit percentage?
Gross profit percentage is the amount of money a company makes from selling its goods, minus the cost of goods sold (COGS). It's calculated by dividing gross profit by revenue.
What is the markup percentage?
Markup percentage is the amount of money a company adds to the cost of a product before selling it to make a profit. It's calculated by dividing markup by COGS. This number will help you determine how much you need to increase your prices in order to stay competitive in your industry.
Calculating gross profit percentage
To calculate gross profit percentage, divide gross profit by revenue.
Cost of service or product is R100.00 and sells for R150.00.
Gross profit % = (Selling price – cost price) / selling price x 100
Gross profit is R50 but 33% of the selling price.
Calculating markup percentage
To calculate markup percentage, divide markup by cost of goods sold (COGS).
Cost of service or product is R100.00 and sells for R150.00 (same as above)
Markup % = (Selling price – cost price) / cost price x 100
Markup is R50 - 50% of the cost.
Gross Profit vs Markup Comparison Examples
15% Markup = 13% Gross Profit
20% Markup = 16.7% Gross Profit
25% Markup = 20% Gross Profit
50% Markup = 33% Gross Profit
75% Markup = 42.9% Gross Profit
100% Markup = 50% Gross Profit
Gross profit percentage and markup percentage seem to be a little bit confusing to people. Many times, they sound the same or they get used interchangeably by salespeople … but they are not the same calculation. So we hope this article helps you in your quest for knowledge. It should at least clear the air enough to allow you to make a more informed decision when talking with your favourite distributor.