How2Day: Difference Between Mark Up & Gross Profit

Mark up and gross profit are business and account concepts that are related in theory, but their practical application in the business process is where differences exist. Mark up is defined as the amount added by a reseller to the cost of a product purchased in order to gain profit. Business Dictionary defines gross profit (or gross income) as simply sales revenue minus costs of goods sold.

One of the most obvious differences between mark up and gross profit is that one is considered in pre-sale planning, while gross profit is typically discusses upon completion of a sale. Mark up is part of marketing and sales strategy as a company decides how much gross profit it expects to earn on a particular product. A high-end provider typically has a higher mark up on products than a low-cost, volume-driven company. Gross profit is typically discussed as an aggregate amount of all products sold less the total costs of goods sold. Mark up often varies by product, while gross profit gives a total difference between revenue earned and costs for all products.

Another minor difference in comparing mark up and gross profit is that the mark up concept is often discussed in percentages, whereas gross profit is typically reported in dollars. When a company acquires product 'x' at $20, for instance, it can decide to mark up the cost by $10 for a sales price of $30. However, mark up consideration is often based on a desired percentage of profit. The company might decide to mark up the sale price by 50 percent of the cost ($10) for a price of $30. Sometimes the mark up is expressed as a percentage of the sales price, as in the $30 price is a 33 1/3 percent mark up (mark up of $10 equals one-third of the $30 sales price).

The most obvious distinction that separates the term gross profit from mark up is that gross profit is a specific accounting label used on a company's income statement. Appearing near the top of the income statement, gross profit is calculated by taking total sales revenue (broken down by category) and subtracting total sales costs (costs of goods sold). Business Dictionary notes that gross profit provides a good "top line" measure of income, but operating income, which takes out other expenses of running your business, is a better overall look at a company's profit position.

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