Short answer
Markup on cost and gross profit margin use the same dollar spread: selling price minus item cost. Markup divides that spread by cost; gross margin divides it by selling price. A $5 item sold for $6.50 therefore has a 30% markup but about a 23.1% gross margin. 2
On this page
At a glance
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| Attribute | Markup | Profit margin |
|---|---|---|
| Selected meaning | Markup on cost | Gross margin on selling price |
| Numerator | Price minus cost | Price minus cost |
| Denominator | Item cost | Selling price |
| $1 cost, $1.50 price | 50% | About 33.3% |
These conventions match Maine’s retail comparison, although it also calls margin markup on price. 1
What each thing is
Markup describes the addition relative to the item’s cost. Gross profit margin describes the spread as a share of the sale. Here, both refer to item-level pricing arithmetic, not the business’s final profit after all expenses. The retail spread must also cover selling and operating expenses. 1
Key differences
Writing cost as C and selling price as P, markup is (P − C)/C, while gross margin is (P − C)/P; multiply either result by 100 for a percentage. With positive cost and a profitable sale, P exceeds C, so markup is the larger percentage—not a larger dollar profit. 1
How to tell them apart
Check the denominator rather than trusting the label. Division by item cost identifies markup on cost; division by selling price identifies gross margin in this comparison. This rule has a terminology limit: Maine also uses profit margin pricing for profit divided by total cost in its service-pricing discussion. 1
Where they overlap
Both measures start with exactly the same dollar difference. Penn State’s $5-to-$6.50 example has one $1.50 spread, whether described through a 30% markup or an approximately 23% gross margin. Changing the denominator changes the percentage, not the transaction or its dollar spread. 2
Edge cases
Markup does not always mean a percentage on cost. Maine explicitly allows markup on selling price and equates that retail calculation with profit margin. Penn State also sometimes labels the dollar spread gross profit margin. When a figure is ambiguous, identify both its denominator and whether it is dollars or a percentage. 1 2
Why the distinction exists
The two denominators answer different questions: how large is the addition compared with the purchase cost, and how much of the selling price is the gross spread? Confusing those questions makes a stated percentage misleading: adding 30% to cost does not produce a 30% gross margin. 2
Common misconceptions
A 50% markup is not a 50% margin: Maine’s $1 item sold for $1.50 demonstrates the difference. Nor does a gross margin percentage establish net profitability. Selling and operating expenses still have to be paid from the retail spread before a net profit remains. 1
Examples
Case 1: Maine’s item costs $1 and sells for $1.50. Its $0.50 spread is 50% of cost but about 33.3% of price. 1
Case 2: Penn State’s item costs $5 and sells for $6.50. Adding 30% of cost creates $1.50 in gross profit, which is only about 23.1% of the selling price. 2