Profitability: the capacity of a business to yield a financial gain beyond covering expenses. Some businesses might have high volume turnover and high revenue yet not be profitable because of high production costs or other factors. Generally businesses starting out have a period where they are trying to gain sufficient traction before they can be profitable and new businesses need to plan carefully to make sure they survive this period. Without profitability a business won’t last long-term.
Gross profit % and markup: what’s the difference? People often confuse gross profit % with markup, probably because in straight numbers terms they look the same. However, knowing the distinction helps you assess your profitability.
Markup is the difference between what an item costs you (its cost price) and the final price you put on it when you sell it (its selling price). It is calculated as a percentage of cost. Gross profit % is exactly the same amount but expressed as a percentage of the final selling cost.
Example:
Your widget cost $10 and sells for $15
- Your markup is $5 - 50% or cost
- Gross profit % is still $5 but it's 33% of your selling price