Margin and markup both describe profit on a product, but they measure it against different bases. Confusing the two leads to systematically underpricing or misquoting profitability — a surprisingly common problem in small business.
Profit Margin
Margin = (Selling price − Cost) ÷ Selling price × 100
Margin measures profit as a proportion of what the customer pays.
| Cost | Selling price | Profit | Margin |
|---|---|---|---|
| Rs 60 | Rs 100 | Rs 40 | 40% |
| Rs 200 | Rs 250 | Rs 50 | 20% |
| Rs 500 | Rs 800 | Rs 300 | 37.5% |
Margin is the number accountants, investors and financial reports use — it answers "what fraction of each rupee of revenue becomes profit?"
Markup
Markup = (Selling price − Cost) ÷ Cost × 100
Markup measures profit as a proportion of what you paid.
| Cost | Selling price | Profit | Markup |
|---|---|---|---|
| Rs 60 | Rs 100 | Rs 40 | 66.7% |
| Rs 200 | Rs 250 | Rs 50 | 25% |
| Rs 500 | Rs 800 | Rs 300 | 60% |
Markup is natural for pricing — you start from cost and add a percentage: Cost × (1 + markup/100) = Selling price.
Why the Same Transaction Gives Different Numbers
Rs 60 cost, Rs 100 selling price:
- Margin: 40%
- Markup: 66.7%
Both are correct — they just measure against different things. The confusion arises when someone says "I make 40% profit" meaning 40% markup, but the listener interprets it as 40% margin (or vice versa).
Converting Between Them
Margin → Markup: Markup = Margin ÷ (1 − Margin/100)
- 40% margin → 40 ÷ 60 × 100 = 66.7% markup
Markup → Margin: Margin = Markup ÷ (1 + Markup/100)
- 50% markup → 50 ÷ 150 × 100 = 33.3% margin
Practical Guidance
When setting prices: use markup. You know your cost; you apply a markup to reach a selling price. When reviewing profitability: use margin. It tells you what fraction of revenue you keep as profit.
Use Profit Margin Calculator to calculate both for any transaction. For pricing a product including all costs, see how to price a product for profit.
Which Does Your Accounting Software Report?
Most accounting software reports gross profit margin (revenue minus cost of goods / revenue), which is the margin formula. Your pricing process naturally uses markup (cost × multiplier = price). Both numbers are useful — just know which you're looking at. A reported gross margin of 40% is not the same as saying you applied a 40% markup to your costs (that would be a 40% margin only if applied correctly, but a 40% markup produces a 28.6% margin). Profit Margin Calculator converts between the two for any set of numbers.
Net Margin vs Gross Margin
Gross margin covers only the direct cost of goods sold. Net margin deducts all expenses — overheads, staff, rent, marketing, taxes. A business with a 40% gross margin and high fixed overheads may have a net margin of only 8-10%. Pricing decisions typically start with gross margin (covering product costs), but long-term viability depends on net margin covering everything. Profit Margin Calculator calculates gross margin by default; tracking net margin requires accounting for all costs.
