This is general information, not tax or legal advice. Rules and rates change, so check GOV.UK or ask an accountant.
Markup and gross margin both describe profit on a sale but are measured differently. Confusing them leads to underpricing.
The formulas
- Gross profit = selling price − direct cost.
- Markup = gross profit ÷ cost.
- Gross margin = gross profit ÷ selling price.
An example
You buy an item for £60 and sell it for £100.
- Gross profit is £40.
- Markup is 40 ÷ 60 = 66.7%.
- Gross margin is 40 ÷ 100 = 40%.
The trap
If you want a 40% margin but add a 40% markup to a £60 cost, you charge £84, and your margin is only 28.6%. To get a 40% margin you need to charge cost ÷ (1 − 0.40), which is £100.
Why gross margin matters
- It must cover overheads, wages and profit.
- It shows whether growing sales will help or hurt.
- It lets you compare products, clients and periods.
Check your numbers
- Work out gross margin on each product or service.
- Include all direct costs: materials, delivery, card fees and direct labour.
- Compare with your target and with last quarter.
See how to read a profit and loss statement and tracking profit by project or client.
How AvrioBooks helps
The profit and loss report shows income, cost of sales and gross profit, and segments (Standard and above) show margin by product, client or site. Inventory on Premium tracks cost. See inventory management software.
Frequently asked questions
What is the difference between margin and markup?
Markup is profit divided by cost. Margin is profit divided by selling price.
If I add a 40% markup, is my margin 40%?
No. It would be about 28.6%.
How do I get a 40% margin?
Divide your cost by 0.60.
Can I see gross profit in AvrioBooks?
Yes, on the profit and loss report, with segments to break it down.
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