Gross margin vs markup
Definition
Gross margin and markup describe the same rand of profit against two different bases. Markup expresses profit as a percentage of what the item cost you. Gross margin expresses the same profit as a percentage of what you sold it for. Buy at R80 and sell at R100 and you have made R20: that is a 25% markup and a 20% gross margin. Markup is always the larger of the two numbers, which is why using it where margin is meant flatters profitability every single time.
What it changes in practice.
Price lists are usually built on markup, because that is how a buyer thinks: cost plus. Management accounts are always read in margin, because that is how a bank and a landlord think: percentage of turnover. Businesses that move between the two without converting end up pricing to a margin they never actually earned.
In food the gap is expensive because the percentages are thin to begin with. A kitchen aiming at 30% margin and pricing at 30% markup is running roughly 23% margin and does not know it — on tight volumes that is the difference between a good month and a flat one.
What it looks like when Finch catches it.
Related terms and reading.
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