You buy a kurta for ₹400 and sell it for ₹600. Is that a 50% profit or a 33% profit? Both answers are correct, and that is exactly the problem. One is your markup, the other is your margin, and mixing them up is how small sellers end up pricing below what they planned.
Markup and margin measure the same profit from two sides
Markup and margin both describe the same thing: the gap between what an item costs you and what you sell it for. The only difference is what you divide that gap by.
- Markup compares your profit to the cost of the item.
- Margin compares your profit to the selling price.
Because the selling price is always bigger than the cost (if you are making money), the margin percentage is always smaller than the markup percentage for the same sale. Neither number is wrong. You just have to say which one you mean.
The marketing textbook Marketing Metrics, quoted on Wikipedia, puts it plainly: “Margins represent a key factor in pricing, return on marketing spending, earnings forecasts, and analyses of customer profitability.”
The two formulas
Start with your profit per item: selling price minus cost. Then:
- Markup % = profit ÷ cost × 100
- Margin % = profit ÷ selling price × 100
A real example with a ₹400 kurta
Say a kurta costs you ₹400 from your supplier and you sell it for ₹600. Your profit is ₹200.
- Markup: ₹200 ÷ ₹400 = 50%
- Margin: ₹200 ÷ ₹600 = 33.3%
So you can honestly say you marked the kurta up by 50%, while only a third of every rupee you take at the counter is gross profit.
Wikipedia gives two more worked cases that follow the same logic. An item that costs $100 and sells for $200 carries a 100% markup but a 50% margin. An item that costs $204 and sells for $340 carries a 67% markup ($136) and a 40% margin.
How to price for the margin you actually want
This is where most mistakes happen. Suppose you want a 30% margin on that ₹400 kurta. The tempting move is to add 30% to the cost: ₹400 × 1.3 = ₹520. But ₹120 of profit on a ₹520 price is only a 23.1% margin, not 30%.
To hit a target margin, divide the cost instead of multiplying it:
Selling price = cost ÷ (1 − target margin)
For a 30% margin: ₹400 ÷ 0.7 = ₹571.43. Check it: ₹171.43 of profit divided by ₹571.43 is exactly 30%. The same method gives Wikipedia’s example of a $100 item priced for a 40% margin: $100 ÷ 0.6 = $166.67.
Quick conversion table
If you already know one number, you can switch to the other without the original prices:
- Margin = markup ÷ (1 + markup)
- Markup = margin ÷ (1 − margin)
| Markup | Margin |
|---|---|
| 25% | 20% |
| 42.9% | 30% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
Notice that a 40% margin needs a markup of about 67%, not 40%. Wikipedia notes that in clothing, margins near the 40% mark are expected, so a clothes seller who thinks in markup has to add roughly two thirds to the cost to get there.
Common mistakes to avoid
Giving a discount equal to your markup
Wikipedia’s markup page shows the trap with an item that costs 75. A 25% markup gives a price of 93.75. A 25% discount on that price brings it down to 70.31, which is below cost. The reason: the markup is a percentage of the smaller number (cost), while the discount is a percentage of the bigger one (price). If you had priced at 75 ÷ 0.75 = 100 instead (a 25% margin), the same 25% discount would bring you back to exactly 75, your cost. For more on how percentages behave when they stack, see our guide to why 20% off plus 10% off is not 30% off.
Treating margin as take-home profit
Gross margin only subtracts what the goods themselves cost you. Rent, staff, delivery to customers, and other running expenses still have to come out of it. A healthy-looking 33% margin can shrink a lot once those are paid. To see how many units you need to sell to cover those fixed costs, read how to find your break-even point.
Comparing your markup with someone else’s margin
If a supplier says their products leave “a 40% margin” and you calculate a 40% markup on your side, you are not talking about the same profit. Always ask which one is meant before comparing.
The short version: markup divides by cost, margin divides by price. Price from the margin you want, and your profit will be the one you planned.
