Difference Between Mark Up And Gross Profit

People are often getting confused with mark-up and gross profit. A mistake on this could cost a company dearly. The difference between the two could be described as follow:

Mark-Up: Refers to the margin or amount added to the cost price of an article/product that will make up the selling price of that product divided by the cost of that product.

Gross Profit: Refers to the gross income for products sold divided by the selling price for the product.

Example:

The cost price of the product: R120.00

Selling price R200.00

In our normal Income state format the gross profit will be:

Sales R200.00

Less: Cost of sales R120.00

Gross profit R 80.00

Gross profit margin will be: R80.00 ÷ R200.00 = 0.40 or 40%

Mark up will be: R80.00 ÷ R120.00 = 0.67 or 67%

It is then clear that a mark-up of 67% on cost price only gives us a gross profit of 40%.

Note that the mark-up percentage will always be higher than the gross profit margin.