Ask two shop owners what "profit" they make and you will often get answers that mean completely different things. The culprit is a subtle but expensive mix-up: margin and markup are not the same number.
The two definitions
- Markup = profit as a percentage of cost. It is what you add on to your buying price.
- Margin = profit as a percentage of the selling price. It is what you keep out of each sale.
Same profit, two different denominators — so two different percentages.
A worked example
You buy an item for Rs 800 and sell it for Rs 1,000. Your profit is Rs 200.
- Markup = 200 ÷ 800 = 25%
- Margin = 200 ÷ 1,000 = 20%
The exact same sale is a "25% markup" or a "20% margin" depending on which you mean.
Why the confusion costs money
Imagine you want a 30% profit margin, but you calculate your price by adding 30% markup to cost:
- Cost Rs 1,000 + 30% markup = Rs 1,300 selling price.
- But the actual margin on Rs 1,300 is only 300 ÷ 1,300 = 23% — well short of the 30% you intended.
Do that across a whole shop, all year, and you have systematically under-priced everything. This is one of the most common reasons small retailers work hard but stay thin on profit.
The rule of thumb
A given markup always produces a smaller margin. Some quick conversions:
| Markup | Margin |
|---|---|
| 25% | 20% |
| 50% | 33% |
| 100% | 50% |
Price on margin, not markup
Decide the margin you need to cover rent, staff and still profit — then work backwards to the price. Our Profit Margin Calculator does exactly that: enter your cost and target margin, and it tells you the price to charge.
Know which number you mean, and you stop leaving money on the counter.
