Margin is profit divided by selling price; markup is profit divided by cost. If something costs ₹800 and sells for ₹1,000, profit is ₹200, margin is 20% and markup is 25%. The profit amount is identical, but the denominator changes.
The same profit, two different percentages
For a sale priced at ₹1,000 with an ₹800 cost, subtract cost from price to get ₹200 gross profit. Divide ₹200 by the ₹1,000 selling price to get a 20% margin. Divide ₹200 by the ₹800 cost to get a 25% markup. Neither percentage is wrong; each answers a different question.
Margin asks how much of the selling price remains after the included cost. Markup asks how much you added to that cost. Label the number when sharing a quote or pricing sheet so a colleague does not treat the two as interchangeable.
Price for a target margin using the right formula
To price for a target gross margin, divide cost by 1 minus the target margin as a decimal. With an ₹800 cost and a 25% target margin, price is ₹800 ÷ 0.75 = ₹1,066.67, approximately. Adding 25% to ₹800 gives ₹1,000 and only a 20% margin.
Swipe across to see the full comparison.
| Pricing decision on ₹800 cost | Selling price | Gross profit | Margin |
|---|---|---|---|
| Add 25% markup | ₹1,000 | ₹200 | 20% |
| Target 25% margin | ₹1,066.67 | ₹266.67 | 25% |
| Target 40% margin | ₹1,333.33 | ₹533.33 | 40% |
These rounded examples exclude tax and use the same cost basis. A target margin of 100% or above cannot produce a finite positive price through this formula.
Choose a cost basis that matches your decision
A product’s purchase price may not be the only variable cost of a sale. Packaging, fulfilment and transaction costs can change how much is left. Decide which costs belong in the calculation, then use the same definition across products or periods.
For example, an item bought for ₹800 and sold for ₹1,000 appears to earn ₹200. If packaging and delivery add ₹100, the included cost becomes ₹900, leaving ₹100 and a 10% margin. The arithmetic is simple; keeping the cost basis honest is the harder part.
- Use cost and selling price on the same tax basis.
- Include the variable costs relevant to the decision.
- Label whether discounts have already been applied.
- Review fixed overheads separately from unit-level gross profit.
Follow margin with a break-even check
A healthy unit margin does not say how many sales are needed to cover rent, salaries or software. If monthly fixed costs are ₹60,000 and each sale contributes ₹600 after variable costs, you need 100 sales to cover those costs under the constant assumptions.
Use the margin tool to check a sale, then the break-even tool to test the monthly plan. Finally, review cash collection: profitable sales on credit may not fund bills that fall due today. Treat price, sales volume and cash timing as related decisions, each with its own calculation.
Common questions.
Is 25% markup the same as 25% margin?
No. On an ₹800 cost, 25% markup gives a ₹1,000 price and 20% margin. A 25% margin needs an approximately ₹1,066.67 price.
Can gross margin be negative?
Yes. If selling price is below the included cost, gross profit and margin are negative.
Does gross margin equal net profit?
No. Fixed overheads, financing costs and tax may still need to be accounted for.
Educational pricing examples. Confirm the requirements and treatment that apply to your circumstances. This article does not make a filing or registration decision for you.
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