In this article
Two shopkeepers both say they “make 30% on everything”. One earns ₹23 on every ₹100 sale, the other earns ₹30. They are not lying. One of them is talking about markup, the other about margin, and the two words sit on different bases.
Same profit, two different percentages
Take a product that costs you ₹600 and that you sell for ₹1,000. Your profit is ₹400. Now ask what percentage that profit is, and you have to choose what to divide by.
The profit of ₹400 is 66.7% of the cost (₹600) but only 40% of the selling price (₹1,000).
- ₹400 ÷ ₹600 cost
- Answers: how much did I add on top of what I paid?
- Common in trading and wholesale
- ₹400 ÷ ₹1,000 price
- Answers: how much of each sale rupee do I keep?
- Common in accounts, reports and investor decks
The two formulas
You can convert one to the other without knowing any rupee amounts. Margin = markup ÷ (100 + markup). Markup = margin ÷ (100 − margin). The second formula explodes as margin rises: a 90% margin means a 900% markup.
Each pair is the same sale. Margin climbs slowly while markup shoots up. At 100% markup you double your cost and keep exactly half of each sale.
The pricing mistake that costs real money
Suppose you want a 30% margin on an item that costs ₹700. There are two ways to price it, and only one is right.
₹700 × 1.30 = ₹910 gives a profit of ₹210, which is 23.1% of ₹910. To get 30%, divide the cost by 0.70: ₹700 ÷ 0.70 = ₹1,000.
On a business that sells ₹10 lakh a month, that gap is ₹69,000 of profit every month, just because the wrong word was used in the pricing sheet.
| Margin | Price | Profit | Markup needed |
|---|---|---|---|
| 20% | ₹875 | ₹175 | 25% |
| 25% | ₹933 | ₹233 | 33.3% |
| 30% | ₹1,000 | ₹300 | 42.9% |
| 40% | ₹1,167 | ₹467 | 66.7% |
| 50% | ₹1,400 | ₹700 | 100% |
Darker rows need a bigger jump on top of cost. Going from a 30% to a 50% margin needs the markup to go from 43% to 100%.
Why a discount bites harder than you think
A product costs ₹75 and sells at ₹100, a 25% margin and ₹25 profit. Offer 10% off. The price becomes ₹90, the cost is still ₹75, so profit falls from ₹25 to ₹15. The margin falls to 16.7%, and the profit drops by 40%.
At a 25% margin, a 25% discount means selling at cost. To make up for 10% off you need to sell about two thirds more units (25 ÷ 15 = 1.67).
Stacked offers are worse still. See why in 50% off plus 20% off is not 70% off.
Gross margin, net margin and where GST fits
- Gross margin counts only the direct cost of the goods. It ignores rent, salaries and electricity.
- Net margin subtracts every cost, including tax. It is the share of each sale you really keep.
- GST is not your revenue. If you charge GST, take it out before you work out margin. Adding or removing GST is a separate step, done on the price first.
- Losses show up in both. A ₹100 item sold for ₹80 has a margin of −25% (loss ÷ price) and a markup of −20% (loss ÷ cost). Same ₹20 loss, two different percentages.
A quick routine for pricing any product
- Write down the full cost per piece, including packing and delivery.
- Decide the margin you want on the selling price, not a markup.
- Divide the cost by (1 − margin) to get the price.
- Add GST on top if you are registered, and check the result against what rivals charge.
- Test a discount before you offer it, using the profit-per-piece figure and not the percentage.
Keep markup for talking with traders who use it. Keep margin for judging whether the business is healthy.
Questions people ask
What is the difference between markup and margin?
Markup is profit divided by cost. Margin is profit divided by selling price. The profit is the same, but margin is always the smaller percentage because the selling price is bigger than the cost.
How do I convert markup to margin?
Margin = markup ÷ (100 + markup). For example a 50% markup is 50 ÷ 150 = 33.3% margin.
How do I convert margin to markup?
Markup = margin ÷ (100 − margin). A 25% margin is 25 ÷ 75 = 33.3% markup.
How do I set a price for a target margin?
Selling price = cost ÷ (1 − margin). For a ₹700 cost and a 30% margin, price = 700 ÷ 0.70 = ₹1,000.
Can markup be more than 100%?
Yes. A product that costs ₹100 and sells for ₹300 has a 200% markup. Margin can never be above 100%.
Is gross margin the same as net margin?
No. Gross margin subtracts only the direct cost of the goods. Net margin subtracts every cost, including overheads and tax.