Markup vs Profit Margin: What Is the Difference?

Many small business owners mix up markup and margin and end up underpricing. They look similar but use different bases, so the same price gives different percentages.

Definitions

• Markup is how much you add on top of your cost. Markup % = (selling price − cost) ÷ cost × 100.
• Profit margin is the share of the selling price you keep as profit. Margin % = (selling price − cost) ÷ selling price × 100.

Example

You buy an item for ₹100 and sell it for ₹150. Profit is ₹50.

• Markup = 50 ÷ 100 × 100 = 50%
• Margin = 50 ÷ 150 × 100 = 33.3%

Same sale, two different numbers. Margin is always lower than markup (unless both are zero).

Converting between them

• Margin from markup: margin = markup ÷ (100 + markup) × 100
• Markup from margin: markup = margin ÷ (100 − margin) × 100

The pricing trap

Suppose you want a 30% margin on a product that costs ₹700. If you add 30% markup you get ₹910, which is only a 23% margin. The right price is cost ÷ (1 − margin) = 700 ÷ 0.70 = ₹1,000. Check it: profit ₹300 ÷ ₹1,000 = 30%.

Which should you use?

• Use markup when you set prices from a cost sheet (cost + percentage). It is common in trading and contracting.
• Use margin when you judge profitability, compare products or set targets. It tells you how much of each rupee of sales you keep.

Whichever you use, say which one in your team. "We keep 30%" is unclear until you know whether it is on cost or on price.

Do not forget GST

Calculate margin on the price excluding GST. GST is collected for the government and is not your income. See how to calculate GST.

Work it out instantly with our profit margin calculator, then continue with how to price your products and services.