A $100 direct-cost example
Assume a fictional job has $100 in direct costs, before allocated overhead. A 50% markup adds half that cost: the price is $150, gross profit is $50, and gross margin is 33.3%. To reach a 50% gross margin, direct costs must be half the selling price: the price is $200.
| Method | Price | Gross profit | Gross margin |
|---|---|---|---|
| 50% markup | $150 | $50 | 33.3% |
| 50% gross margin | $200 | $100 | 50.0% |
Margin = (price − cost) ÷ price
Be explicit about the cost base
If cost means direct costs only, this margin is gross margin before overhead. If cost includes overhead, the result describes the surplus after that entered overhead. State which costs are included before comparing percentages.
A percentage cannot guarantee a result
Actual time, extra materials, travel, discounts, and unrecorded expenses can change the outcome. An estimated gross margin does not mean the business has earned that percentage as final profit.
The toolkit distinguishes markup and gross margin and reports profit after recorded overhead. The free web calculator deliberately uses a simpler base containing all entered costs.
Compare the two methods