Summary Matrix

Metric Formula Denominator Base Example ($40 Cost, $100 Price)
Gross Margin $$\left(\frac{\text{Price} - \text{Cost}}{\text{Price}}\right) \times 100$$ Based on Selling Price $$\left(\frac{100 - 40}{100}\right) \times 100 = \mathbf{60\%}$$
Markup $$\left(\frac{\text{Price} - \text{Cost}}{\text{Cost}}\right) \times 100$$ Based on Cost Price $$\left(\frac{100 - 40}{40}\right) \times 100 = \mathbf{150\%}$$

Key Difference

  • Margin looks backwards from the final selling price to measure how much profit is contained inside the sale dollar.
  • Markup looks forwards from wholesale cost to determine how much price to add on top of cost.

Developer Takeaway

Pricing Rules Engine: When building automated cost-based pricing rules (e.g. "Apply 50% increase"), clarify whether the user interface setting expects a markup percentage or a target margin percentage to avoid underpricing catalog items.