About the Profit Margin
Margin and markup describe the same profit from two different angles, and confusing them is one of the most expensive mistakes in pricing. Markup is profit as a percentage of cost. Margin is profit as a percentage of the selling price. A product that costs ₹800 and sells for ₹1,000 earns ₹200: that is a 25% markup but only a 20% margin.
The gap matters in daily business. A distributor who asks for a 30% margin is asking for much more than a 30% markup, and a retailer who adds 30% to cost and believes the margin is 30% will find the accounts showing about 23%. Banks, investors and marketplaces usually talk in margin, while traders often price by markup.
This calculator works in three directions. Enter cost and selling price to see profit, margin and markup together. Or enter cost with the margin you want, and it returns the selling price that delivers it. Or enter cost with a markup percentage. Use prices before GST, since the tax you collect is passed on to the government and is not part of your income.
How to use it
- 1Choose what you know: cost and selling price, cost and a target margin, or cost and a markup.
- 2Enter the cost per unit, excluding GST. Include purchase price, freight and packing if you want a truer figure.
- 3Enter the selling price, the margin percentage or the markup percentage, depending on the mode.
- 4Read the profit per unit, the margin on selling price and the markup on cost, and compare them with what your buyer or distributor is asking for.
How this is calculated
Profit = Selling price − Cost Margin % = Profit ÷ Selling price × 100 Markup % = Profit ÷ Cost × 100 Selling price for a target margin = Cost ÷ (1 − Margin % ÷ 100) Selling price for a markup = Cost × (1 + Markup % ÷ 100) Converting: Margin = Markup ÷ (100 + Markup) × 100, and Markup = Margin ÷ (100 − Margin) × 100
Frequently asked questions
What is the difference between margin and markup?
Both start from the same profit. Markup divides the profit by the cost, while margin divides it by the selling price. Because the selling price is larger than the cost, the margin is always the smaller number: a 50% markup is a 33.3% margin, and a 100% markup is a 50% margin.
How do I set a price to earn a 20% margin?
Divide the cost by one minus the margin. For a cost of ₹800 and a 20% margin, the price is 800 ÷ 0.80 = ₹1,000. Simply adding 20% to the cost gives ₹960, which is a 20% markup but only a 16.7% margin — a common and costly slip.
Can a profit margin be more than 100%?
No. Margin is measured on the selling price, so it approaches 100% only when the cost is close to nothing. Markup has no upper limit: an item bought for ₹100 and sold for ₹400 carries a 300% markup and a 75% margin. If someone quotes a margin above 100%, they mean markup.
Should I include GST in the cost and the selling price?
Use figures before GST if you are registered and claim input tax credit, because the GST you collect is paid over to the government and the GST you pay on purchases comes back as credit. If you cannot claim credit, for instance under the composition scheme, treat the GST paid on purchases as part of your cost.
Is this gross margin or net margin?
It is the gross margin on a single unit: selling price minus the direct cost of that unit. Net margin also deducts rent, salaries, marketing, interest, depreciation and tax, so it is always lower. Use this tool for pricing decisions and your profit and loss statement for the net figure.