You buy an item for $80 and sell it for $100. Profit as a percentage of cost?

Why Your $20 Profit Is Actually a 25% Win

You paid $80. You sold for $100. You pocketed $20. Simple enough — but what does that $20 actually mean as a percentage? The answer is 25%, and understanding why reveals one of the most important distinctions in all of business finance.

The Maths Behind the Number

The formula for profit as a percentage of cost is straightforward:

(Selling Price − Cost Price) ÷ Cost Price × 100

Plug in the numbers: (100 − 80) ÷ 80 × 100 = 25%.

That 80 in the denominator is the key. You're measuring your $20 gain against what you originally spent — your cost — not against what you sold it for. That's what makes this a profit margin on cost, sometimes called markup percentage.

Markup vs. Margin — Don't Mix Them Up

Here's where a huge number of people — including small business owners — trip up. There are two very different ways to express profitability as a percentage, and confusing them can seriously distort your view of how well a business is actually doing.

Markup compares profit to the cost. In this case: $20 ÷ $80 = 25%. This is what the question is asking.

Gross margin compares profit to the selling price. Same numbers: $20 ÷ $100 = 20%.

Same transaction. Same $20 profit. Two different percentages: 25% and 20%. Neither is wrong — they're just answering different questions. Markup tells you how much you added to your cost. Margin tells you what portion of your revenue is profit.

Why It Matters in the Real World

Retailers, wholesalers, and manufacturers use markup constantly when pricing products. A furniture store that buys a sofa for $400 and wants a 25% markup will sell it for $500. A grocery chain operating on razor-thin margins might run a 10–15% markup on most products, while a luxury jeweller could mark items up by 100% or more.

Getting this calculation wrong has real consequences. A business owner who confuses markup with margin might think they're making more money than they are — and end up underpricing products, running out of cash, or even trading at a loss without realising it.

A Quick Sanity Check

One useful rule of thumb: markup percentage will always be higher than gross margin percentage for any profitable sale, because you're dividing by a smaller number (cost) rather than a larger one (selling price). If someone quotes you a number that seems surprisingly high, it's worth asking — markup or margin?

In this case, a $20 gain on an $80 investment is genuinely a solid 25% return. In investing terms, that would be an exceptional annual return. In retail, it's pretty standard — and now you know exactly how to calculate it.