system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: WHY is markup different from profit

ELI5:     

I have been tasked with helping my boss understand the difference between GROSS PROFIT  and MARKUP on items we sell (YEA, I KNOW). I know they are different; I know a 25% markup only produces a 20% gross profit but I don't understand WHY they are different or "where the other 5% goes". 

If I buy a carrot for $1.00 and sell it for $1.30, WHY/HOW do I only make 23% rather than 30%? Where does the other 7% go?
gpt
Once you increase by a percentage, then the next time you use a percentage it's applied to the new number, not the original number.   
 Example:  Start with $1, then increase by 50% - now you have $1.50.  Now reduce by 50% - you have $0.75, not the $1 you started with.

So:

* Start with a $1 carrot.
* Mark it up by 30%:  $1 \* 30% = $0.30, so the marked up price is $1.30.
* Sell that carrot for $1.30.  Your profit was $0.30.  What percentage is that?  0.3 / 1.30 = .23, so 23% profit.
* $.30 might have been 30% of $1, but it's only 23% of $1.30.