An item bought for eighty and sold for one hundred has a difference of twenty. Describing that difference as a percentage requires choosing a denominator, which is why markup and margin can differ.
Calculate the two ratios
In this simplified example, twenty divided by the cost of eighty is twenty-five percent. Twenty divided by the selling price of one hundred is twenty percent. The first expresses the markup on cost; the second expresses the gross margin as a share of sales.
The AccountingCoach explanation of markup and gross margin distinguishes these bases. Neither ratio in this small exercise includes every possible business expense.
Read the book’s labels before reusing its number
If a worked example says only “twenty percent profit,” find the surrounding definition. Ask whether it means a share of revenue, a percentage added to cost or something else entirely.
Write the numerator and denominator beside the percentage in your notes. This habit is useful when comparing examples, because changing the label without changing the formula can make the same sale appear to earn two contradictory results. The arithmetic agrees once the two bases are visible.