FLUF / THE SELLER REFERENCE
Margin vs markup: definitions, formulas and examples
Gross profit expressed as a percentage of revenue: revenue minus cost of goods sold, divided by revenue.
The difference is the denominator
For a simple product example, margin divides the difference between selling price and product cost by the selling price. Markup divides that same difference by product cost. They describe the same monetary difference from different starting points, so their percentages are not interchangeable.
Worked example
A product costs £20 and sells for £30. The £10 difference is a 50% markup because 10 ÷ 20 = 0.5. It is a 33.3% gross margin because 10 ÷ 30 is approximately 0.333. Adding 50% to cost does not produce a 50% margin.
How to price for a target margin
In a simplified calculation before other costs, selling price = product cost ÷ (1 − target margin as a decimal). With £20 cost and a 40% target, £20 ÷ 0.60 gives about £33.33. Verify the rounded price and include any other costs relevant to your actual pricing decision.
Gross margin is not take-home profit
Marketplace fees, postage you absorb, packaging, advertising and overheads can reduce what remains. Keep the definition of product cost consistent and do not label a gross-profit calculation as net profit. Use the existing profit-margin or marketplace-fee calculator for the assumptions appropriate to your sale.
Comparing several products
Calculate total gross profit divided by total revenue when assessing combined gross margin. A simple average of each item’s percentage gives small sales the same weight as large sales and can mislead. With zero revenue, the margin percentage is undefined; with zero cost, percentage markup is undefined even if the item sells for a positive price.
| Selling price | Gross profit | Markup | Gross margin |
|---|---|---|---|
| £25 | £5 | 25% | 20% |
| £30 | £10 | 50% | 33.3% |
| £40 | £20 | 100% | 50% |
Put it into practice
Use the related reporting guide or calculator. For selling across marketplaces, see FLUF Connect crosslisting and current plans and pricing.
Related terms
Reference
Primary reference: Shopify. The examples on this page are illustrative, not customer results or universal benchmarks.
