How-to guides
Margin vs Markup: The Difference, the Formulas and a Conversion Table
Ask a shop owner what they make on an item and you will hear "20%". Ask whether that is 20% of the cost or 20% of the selling price, and the answer is often a pause. The two are different numbers, and pricing with one while thinking of the other is one of the most common ways a shop earns less than it planned.
Key takeaways
- Margin = profit ÷ selling price. Markup = profit ÷ cost.
- To get a 20% margin you need a 25% markup, not 20%.
- Work both on prices before GST; GST is not your profit.
- You may sell below the printed MRP, never above it.
The formulas
| Measure | Formula | Example: cost ₹80, price ₹100 |
|---|---|---|
| Profit | Price − cost | ₹20 |
| Margin | Profit ÷ price × 100 | 20% |
| Markup | Profit ÷ cost × 100 | 25% |
| Price for a target margin | Cost ÷ (1 − margin) | 80 ÷ 0.80 = ₹100 |
| Price for a target markup | Cost × (1 + markup) | 80 × 1.25 = ₹100 |
Conversion table
| Margin you want | Markup you need | Markup you have | Margin you get |
|---|---|---|---|
| 10% | 11.1% | 10% | 9.1% |
| 15% | 17.6% | 15% | 13.0% |
| 20% | 25.0% | 20% | 16.7% |
| 25% | 33.3% | 25% | 20.0% |
| 30% | 42.9% | 30% | 23.1% |
| 40% | 66.7% | 40% | 28.6% |
| 50% | 100.0% | 50% | 33.3% |
Markup = margin ÷ (1 − margin). Margin = markup ÷ (1 + markup).
The costly mistake
A shop that wants a 20% margin and simply adds 20% to cost prices an ₹80 item at ₹96. Its margin is ₹16 ÷ ₹96 = 16.7%, not 20%. On ₹10 lakh of sales, that gap is about ₹33,000 of profit lost, without anyone noticing, because every bill looks "20% over cost".
The reverse confusion happens too: a supplier offering "25% margin" may mean 25% on the retail price, which is a 33% markup on cost. Ask which one is meant.
GST and MRP
- Work margin and markup on prices before GST. The GST you collect belongs to the government and is set off against the GST you paid
- For a registered shop, an item bought at ₹80 + 5% GST and sold at ₹100 + 5% GST still has a ₹20 profit and a 20% margin
- For an unregistered shop, GST paid on purchases is part of cost: ₹84 cost, so a ₹100 price gives a 16% margin
- MRP is the most you may charge, inclusive of all taxes, under the Legal Metrology rules; you may always sell below it
- On an MRP item, your margin is fixed by the distributor's rate; check it before stocking
Checked on 11 November 2026 against the Legal Metrology (Packaged Commodities) Rules, 2011 (MRP declaration) and the GST rate notifications in force since 22 September 2025.
Worked example from a kirana
Sri Lakshmi Stores, the kirana in our accounting examples, made a gross profit of ₹10,40,000 on sales of ₹48,00,000 in 2025-26. That is a 21.67% margin on sales, and a markup of 10,40,000 ÷ 37,60,000 = 27.7% on the cost of goods sold. Both describe the same profit. When the owner reviews prices, he works from the margin each category needs and converts it to a markup before setting prices.
Numbers to watch
| Number | Why |
|---|---|
| Margin by category | Staples run thin, snacks and personal care higher; an average hides both |
| Margin after discounts | Discounts come straight out of margin |
| Items sold below target margin | Often old prices left after a cost increase |
| Margin trend month to month | A fall points to pricing, shrinkage or supplier rate changes |
Where TripleBill fits
TripleBill stores a purchase price and selling prices (retail, wholesale and MRP) on each item, and its bill-wise, party-wise and item P&L reports show profit and margin using each item's current purchase price as cost. The free profit calculator works out margin and markup without an account.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit as a percentage of the selling price; markup is profit as a percentage of cost.
What markup gives a 20% margin?
25%. Markup = margin ÷ (1 − margin) = 0.20 ÷ 0.80.
Is margin always lower than markup?
Yes, for a profitable sale, because the selling price is larger than the cost.
Should I include GST in margin calculations?
No, if you are registered and claim input credit. If you are not registered, GST paid on purchases is part of your cost.
Can I sell above MRP?
No. MRP is the maximum retail price including taxes; you can sell at or below it.
About the author
Written by the TripleBill team, the people who build the billing and accounting software this site is about. We check competitor prices on their own websites on the date shown above, and we say so when our product is the weaker choice. This article is general information, not tax advice.
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Related pages
See the margin on every bill.
Bill-wise and item P&L reports show profit as you sell.