Gross margin and markup are two different ways to express the same relationship between price and cost. Confusing them is one of the most common financial mistakes in small business — it can cause you to underprice by 30–50%.
The formulas
Gross Margin % = (Price − Cost) ÷ Price × 100
Markup % = (Price − Cost) ÷ Cost × 100
Both use the same gross profit number ($Price − $Cost). The difference is the denominator.
The critical distinction
If your margin is 50%: you keep 50 cents of every dollar earned. If your markup is 50%: you added 50 cents to every dollar of cost — which is only a 33% margin.
This is where founders get into trouble. If you target "50% margin" but accidentally use the markup formula, your actual margin is only 33%.
Conversion table: margin to markup
| Gross Margin | Equivalent Markup |
|---|---|
| 10% | 11.1% |
| 20% | 25.0% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100.0% |
| 60% | 150.0% |
| 70% | 233.3% |
| 80% | 400.0% |
Conversion formulas
Margin to Markup: Markup = Margin ÷ (1 − Margin)
Markup to Margin: Margin = Markup ÷ (1 + Markup)
Which to use when
Use gross margin when: reporting to investors, modeling unit economics, comparing to industry benchmarks, calculating LTV, or thinking about profitability as a percentage of revenue.
Use markup when: setting wholesale prices (common in retail), calculating the price from a known cost target, or communicating pricing to distributors.
SaaS companies almost always use gross margin. Physical product and retail businesses often use both. Use the Gross Margin Calculator to see both simultaneously for any revenue/COGS combination.