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Gross Margin vs Markup: Differences, Formulas, and Side-by-Side Conversion Table

Avoid costly pricing mistakes by understanding the exact differences between profit margin and product markup percentages in retail and e-commerce.

A
Arthur SterlingE-Commerce CFO & Pricing Strategist
Published 2026-03-01
5 min read
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Table of Contents

The Fundamental Difference

Many business owners mistakenly interchange the terms Margin and Markup, leading to underpriced inventory and unexpected cash flow shortfalls:

* Gross Profit Margin: The percentage of Revenue that is profit. * Markup: The percentage added directly to the Cost of a product to determine selling price.

Because Cost is almost always smaller than Revenue, Markup is always higher than Margin for any profitable transaction.

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Margin vs Markup Formulas

\text{Profit Margin (\%)} = \frac{\text{Revenue} - \text{Cost}}{\text{Revenue}} \times 100

\text{Markup (\%)} = \frac{\text{Revenue} - \text{Cost}}{\text{Cost}} \times 100

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Margin to Markup Quick Reference Table

| Target Margin % | Required Markup % | Example: Cost $100 $\rightarrow$ Selling Price | | :--- | :--- | :--- | | 10% | 11.1% | $111.11 | | 20% | 25.0% | $125.00 | | 33.3% | 50.0% | $150.00 | | 50.0% | 100.0% (Keystone) | $200.00 | | 60.0% | 150.0% | $250.00 | | 75.0% | 300.0% | $400.00 |

Frequently Asked Questions

What is keystone pricing in retail?

Keystone pricing is a retail pricing rule of thumb where merchandise is priced at exactly double the wholesale cost (a 100% markup, resulting in a 50% gross margin).