Why your margin and your markup are not the same number
Two coffee shops sell the same $5 latte. The first owner says she runs a 60% markup. The second says he runs a 60% margin. Same drink, same price tag, wildly different reality. The first owner is making far less than she thinks, and she has no idea until cash gets tight.
Here is the trap. Markup measures profit against your cost. Margin measures profit against your price. If that latte costs $2 to make and sells for $5, your gross profit is $3. Divide $3 by the $2 cost and you get a 150% markup. Divide that same $3 by the $5 price and you get a 60% gross margin. Same dollars, two completely different percentages, and confusing them is one of the fastest ways to underprice yourself into a loss.
The math they hope you never run. Gross margin is simply (Revenue minus Cost of Goods Sold) divided by Revenue. On $50,000 in monthly sales with $30,000 in COGS, your gross profit is $20,000 and your gross margin is 40%. That 40% is the money left to cover rent, payroll, marketing, and your own paycheck. Everything below the gross line gets paid out of it.
Benchmarks give the number context. A 40% margin sounds fine until you learn that grocery retail often runs on 25% while software can clear 80% or more. Restaurants typically land between 60% and 70% gross margin on food before labor eats into it. Apparel commonly targets 50% to 60%. Knowing where your industry sits tells you whether 40% is a triumph or a warning. This calculator shows your margin, your markup, and your gross profit side by side so you stop guessing which lever to pull.