Pricing guide
Understanding Profit Margin vs Markup
The same profit produces two different percentages. Learn which denominator each calculation uses.
Last reviewed: 30 October 2026
Margin looks at selling price
Gross margin expresses gross profit as a percentage of revenue. Subtract direct unit cost from selling price, then divide by selling price. At £60 cost and £100 price, profit is £40 and gross margin is 40%.
That £40 still needs to contribute to overheads and other costs. Gross margin is not take-home pay or net profit. Decide which direct costs belong in unit cost and use that definition consistently.
Markup looks at cost
Markup expresses the same profit as a percentage of cost. With £60 cost and £40 profit, markup is £40 ÷ £60 × 100 = 66.67%. The amount earned has not changed; the denominator has.
A 100% markup doubles cost. A £25 item becomes £50 and earns £25 gross profit, which is 50% of selling price. A 100% gross margin is only possible when direct cost is zero and revenue is positive.
Convert a target into a price
For a target margin, divide cost by one minus the margin as a decimal. At £60 cost and a 30% target, price is £60 ÷ 0.70 = £85.714… . Rounding up to £85.72 reaches at least that target.
For a markup, multiply cost by one plus the markup decimal. A 30% markup on £60 is £78, producing a margin of £18 ÷ £78 = 23.08%. Label spreadsheet columns and supplier discussions with the intended measure.
Check discounts and edge cases
At £100 price and £60 cost, a 10% price discount reduces price to £90. Profit falls from £40 to £30: a 25% reduction in gross profit per unit. Margin becomes 33.33%. This assumes unit cost stays the same. Include any volume-related cost changes before judging a discount.
Price below cost creates negative profit and margin. At zero price, margin is undefined. At zero cost, markup is undefined. Showing these limits avoids misleading zero percentages. Compare the two measures in the calculator, then check whether contribution can cover overheads with the break-even tool.
Sources to check
This guide is general information for UK readers. It is not legal, tax, employment, insurance or financial advice.