Margin vs Markup
Margin is profit as a percentage of selling price. Markup is profit as a percentage of cost. A 40% markup equals a 28.6% gross margin — they are not interchangeable and confusing them is a common business mistake.
Gross Margin = (Revenue - COGS) / Revenue x 100
Markup = (Selling Price - Cost) / Cost x 100
Frequently Asked Questions
It depends on industry. SaaS: 70-85% gross. Retail: 25-50%. Restaurants: 60-70% gross but only 3-9% net. Always compare to industry benchmarks rather than a universal number.
Gross margin only subtracts COGS. Net margin subtracts all expenses including overhead, salaries, and taxes. A business with 60% gross but 2% net has high overhead eating into profits.