total of sales is the profit. If markup is 30%, the percentage of daily sales that are profit will not be the same percentage. Some retailers use markups because it is easier to calculate a sales price from a cost. If markup is 40%, then sales price will be 40% more than the cost of the item. If margin is 40%, then sales price will not be equal to 40% over cost; in fact, it will be approximately 67% more than the cost of the item. Markup The equation for calculating the monetary value of gross margin is: A simple way to keep markup and gross margin factors straight is to remember that: Percent of markup is 100 times the price difference divided by the cost. Percent of gross margin is 100 times the price difference divided by the selling price. Gross margin (as a percentage of revenue) Most people find it easier to work with gross margin because it directly tells you how much of the sales revenue, or price, is profit: If an item costs to produce and is sold for a price of , the price includes a 100% markup which represents a 50% gross margin. Gross margin is just the percentage of the selling price that is profit. In this case, 50% of the price is profit, or . In a more complex example, if an item costs to produce and is sold for a price of , the price includes a 67% markup ($136) which represents a 40% gross margin. This means that 40% of the is profit. Again, gross margin is just the direct percentage of profit in the sale price. In accounting, the gross margin refers to sales minus cost of goods sold. It is not necessarily profit as other expenses such as sales, administrative, and financial costs must be deducted. And it means companies are reducing their cost of production or passing their cost to customers. The higher the ratio, all other things being equal, the better for the retailer. Converting between gross margin and markup (gross profit) Converting markup to gross margin Examples: Markup = 100% = 1 Markup = 66.7% = 0.667 Converting gross margin to markup Examples: Gross margin = 50% = 0.5 Gross margin = 40% = 0.4 Using gross margin to calculate selling price Given the cost of an item, one can compute the selling price required