Margin, Markup and the Product Cost Question
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A founder says a product costs $10 and sells for $25. You can calculate useful numbers from that answer, but the percentage depends on which number sits underneath the calculation. A 150% markup and a 60% gross margin can describe the same sale.
Markup compares the difference with cost. Margin compares it with revenue. Shopify's explanation uses that distinction. Keeping the denominators straight helps when a pitch moves quickly between manufacturing cost, wholesale price and the price on a shop shelf.
Calculate both from the same sale
Using the stated $10 cost and $25 selling price, the difference is $15. Divide $15 by the $10 cost and the markup is 150%. Divide $15 by the $25 selling price and the margin is 60%. The dollars have not changed. Only the basis of comparison has.
| Measure | Calculation | Result |
|---|---|---|
| Dollar difference | $25 minus $10 | $15 |
| Markup on cost | $15 divided by $10 | 150% |
| Margin on selling price | $15 divided by $25 | 60% |
That calculation assumes the business receives the whole $25 and the $10 is the relevant cost. If a retailer pays the founder $15 before selling the item for $25, the founder's dollar difference is $5. On that wholesale sale, the margin is $5 divided by $15, or about 33.3%.
What did the quoted cost include?
A factory quote may leave out packaging, inbound freight or other costs needed to get goods ready for sale. You cannot silently treat it as a complete cost of goods sold figure. If the founder names only manufacturing cost, describe your result as a difference using that stated cost.
BDC's gross-margin guide distinguishes direct product costs from later deductions needed to reach net income. A positive gross margin still has to support costs elsewhere in the business.
A discount changes more than the revenue headline
Keep the $10 cost but reduce the price from $25 to $20. Revenue per unit falls 20%. The dollar difference falls from $15 to $10, a one-third reduction. The margin is now 50%. That explains why a seemingly modest discount can draw a detailed question about profitability.
When comparing two pitches, write down who receives the stated price, which costs were included and whether the percentage was a markup or a margin. If those inputs are missing, the calculation can show how the arithmetic works, but it cannot establish either business's true profitability.