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# Gross Profit Margin and Markup Calculator

## Setting Prices and Interpreting Results

Commonly, when setting prices, a retailer will add a markup to the price they paid for a stock item. This will usually be a percentage increase. A Fruiterer who buys an apple in bulk for \$0.20 may sell them individually with a markup of 50%. 20c marked up by 50% gives the selling price of 30c. Later when looking at the sales data she will commonly calculate a gross margin. This is the percentage of the sales resulting from the markup (10c per apple divided by the 30c selling price gives a gross margin of 33.33%). After the fruiterer has sold all of her apples she can expect that she will be able to keep one third of the money and the remainder will be paid to the wholesaler. Any error is a measure of wastage through bad fruit, theft, gifts, till variance, unsold product etc.

A misguided fruiterer, however, may expect that they can keep 50% of the money in the till - after all that is the markup used. So it is very important to understand the difference between markup percentage and gross margin.

Below is a simple calculator which will allow you to improve your understanding of the relationship between gross profit margin and mark up. You can use the gross profit calculator or the mark up calculator to increase the understanding of your business and to identify areas in which you could improve your business performance.  When you enter the data for selling price and cost price the calculator will calculate: Gross Profit, Gross Profit Margin (Gross Profit %) and Markup %.  Note that Gross Profit and Markup are the same in dollar terms but they vary in percentage terms.

An important formula developed by Brent Gregory will enable you easily convert gross profit to mark up.  The formula is below

if Mark up equals 1/n gross profit equals 1(n+1) where equals any number.  For instance if mark up equals 50% (1/2) then gross profit equals 33.3% (1/3).  Another example is if mark up equals 25% (1/4) then gross profit equals 20% (1/5).  Importantly this also works in reverse -ie if gross profit equals 20% (1/5) than markup equals 25% (1/4).

 You may also like to investigate: the impact of discounting on profits
Gross Margin and Markup Conversions