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Gross margin
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====Markup==== The equation for calculating the monetary value of gross margin is: {{block indent | em = 1.5 | text = Gross margin = Sales β Cost of goods sold}} A simple way to keep markup and gross margin factors straight is to remember that: # Percent of markup is 100 times the price difference divided by the ''cost''. # Percent of gross margin is 100 times the price difference divided by the ''selling price''. =====Gross margin (as a percentage of revenue)===== Most people find it easier to work with gross margin because it directly tells you how much of the sales revenue, or price, is profit: If an item costs {{US$|long=no|100}} to produce and is sold for a price of {{US$|long=no|200}}, the price includes a 100% markup which represents a 50% gross margin. Gross margin is just the percentage of the selling price that is profit. In this case, 50% of the price is profit, or {{US$|long=no|100}}. <math display="block">\frac{\$200 - \$100}{\$200} \cdot 100\% = 50\%</math> In a more complex example, if an item costs {{US$|long=no|204}} to produce and is sold for a price of {{US$|long=no|340}}, the price includes a 67% markup ($136) which represents a 40% gross margin. This means that 40% of the {{US$|long=no|340}} is profit. Again, gross margin is just the direct percentage of profit in the sale price. In accounting, the gross margin refers to sales minus cost of goods sold. It is not necessarily profit as other expenses such as sales, administrative, and financial costs must be deducted. And it means companies are reducing their cost of production or passing their cost to customers.{{Clarify|date=November 2018}} The higher the ratio, all other things being equal, the better for the retailer.
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