Profit, margin and markup
Every shopkeeper, reseller, freelancer and small business owner needs to know how much they really earn on each sale. Two percentages describe it, and they are often confused: margin and markup. Both use the same profit amount, but they divide it by different numbers. Mixing them up can lead to prices that are too low to cover costs.
How to use the calculator
- Enter your cost price (what the product costs you) and your selling price.
- Read the profit, the profit margin and the markup.
- To set a price, enter your cost and the margin or markup you want, and the calculator gives the selling price.
The formulas
Profit = Selling price − Cost price
Margin % = Profit ÷ Selling price × 100
Markup % = Profit ÷ Cost price × 100
To reach a target: Price = Cost ÷ (1 − margin) or Price = Cost × (1 + markup).
Worked example
You buy a product for ₹800 and sell it for ₹1,200. Profit is ₹400. The margin is 400 ÷ 1,200 = 33.3%, and the markup is 400 ÷ 800 = 50%. The same deal can be described as "a 50% markup" or "a 33% margin".
Now suppose you want a 25% margin on an ₹800 product. A common mistake is to add 25% to the cost (₹1,000). That only gives a 20% margin. The correct price is 800 ÷ (1 − 0.25) = ₹1,066.67.
Margin vs markup at a glance
| Markup | Equivalent margin |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 100% | 50% |
| 200% | 66.7% |
Margin can never reach 100%, but markup can be any size.
Things to include in your cost
For a true picture, include every cost of getting the product to the customer: purchase price, shipping, packaging, marketplace commissions, payment gateway fees and returns. A product with a healthy-looking 40% gross margin can lose money after a 20% marketplace fee and free delivery.
Frequently asked questions
What is a good profit margin?
It varies by industry. Groceries often run on thin margins of a few percent, while software and services can have very high margins.
Should GST be included?
Calculate margin on prices without GST, because GST collected is paid to the government. Use the GST Calculator to separate it.
Is margin the same as net profit?
This tool calculates gross margin. Net profit also subtracts overheads like rent, salaries and electricity.