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Difference Between Gross Profit & Mark-Up
In the retail business, it is important to know the difference between gross profit and mark-up as you are pricing out your items. The two are very similar. Gross profit is a percentage of sales while mark-up is the difference between cost and sales price. Below is a simple example of how to differentiate the two.
Operating expenses fall into the gross profit (GP) category where the expenses are deducted from GP to determine net-income profit. Gross profit ratio expresses the margin as a percentage of sales. The gross profit can be defined as the amount of sales minus cost of goods sold. If the product was sold for $10 and has a cost of $8, the gross profit margin is $2 Therefore, the gross profit margin is 20% ($2 divided by $10).
The mark-up is expected to cover store costs and allow the store to earn a return on the product. Mark-up is used several different ways, but the most common definition is the difference between a product’s cost and its selling price. Going back to the example above, the product is sold for $10 and its cost is $8. The product had a mark-up of $2.