Margin or markup? The pricing mistake that quietly costs you a third of your profit
A 50% markup and a 50% margin are not the same thing. Confusing them is the single most common pricing error in Indian small business — and it always costs money in the same direction.
Ask two shopkeepers what a 50% profit means and you will often get two different numbers. One means margin. The other means markup. The gap between them is not academic — it is roughly a third of the profit you thought you were making.
The two formulas, side by side
Markup is measured against what the item cost you:
Markup % = (Selling price − Cost) ÷ Cost × 100
Margin is measured against what the customer paid:
Margin % = (Selling price − Cost) ÷ Selling price × 100
Same profit. Different denominator. That single difference is where the money leaks.
A worked example
You buy an item for ₹100 and sell it for ₹150. Your profit is ₹50.
- Markup = 50 ÷ 100 = 50%
- Margin = 50 ÷ 150 = 33.33%
Now suppose your accountant says the business needs a 50% margin, and you price by adding 50% to cost. You charge ₹150 and deliver a 33.33% margin. You are a third short of the target and it will not show up until the year-end statement.
Pricing for a target margin
To hit a margin, you divide rather than multiply:
Selling price = Cost ÷ (1 − Margin ÷ 100)
For a 50% margin on a ₹100 cost: 100 ÷ 0.50 = ₹200. Not ₹150.
A conversion table worth keeping
| Markup | Equivalent margin |
|---|---|
| 10% | 9.09% |
| 25% | 20.00% |
| 50% | 33.33% |
| 100% | 50.00% |
| 150% | 60.00% |
| 300% | 75.00% |
Notice that margin can never reach 100%. That would require a selling price of infinity. Markup has no such ceiling, which is why the two numbers diverge so sharply at the top end.
Which should you actually use?
Use markup when you are setting a price, because you start from a cost you already know. Use margin when you are reviewing performance, because margin is what your profit and loss statement reports and what your bank manager will ask about.
The rule is simply this: never quote one number and calculate with the other.
Check your own numbers
Put your cost and selling price into the Profit Margin Calculator and it will show margin, markup, gross profit, net profit and your break-even price together, so the two figures can never be confused again.