# Training Reference: Markups, Margins and Profits

One of the most important financial concepts you will need to learn in running your business is the computation of gross profit. And the tool that you use to maintain gross profit is markup. The gross profit on a product sold is computed as:

Selling PRICE - COST of Goods = Gross Profit

Many business owners often get confused when relating markup to gross profit margin. They are both computations that deal with the same variables. The difference is that gross profit margin is figured as a percentage of the selling price, while markup is figured as a percentage of the seller’s cost. Markup is computed as follows:

(Selling PRICE - COST of Goods) / COST of Goods = Markup Percentage

Markup calculations are expressed as a percent of cost.

While the gross profit is a dollar amount, the gross profit margin is expressed as a percentage. It is equally important to track since it allows you to keep an eye on profitability trends. This is critical because many businesses have gotten into financial trouble with an increasing gross profit that coincided with a declining gross profit margin. The gross profit margin is computed as follows:

Gross Profit / Sales = Gross Profit Margin

Margin calculations are expressed as a percent of price.