Margin vs markup: the most expensive mix-up in pricing
Margin and markup both describe profit, but they measure it against different bases. Mixing them up is one of the most common and costly pricing mistakes in small businesses:
Profit = Selling price − Cost
Margin = Profit ÷ Selling price × 100
Markup = Profit ÷ Cost × 100Example: you buy a product for ₹600 and sell it for ₹1,000. Profit is ₹400. Your markup is 66.7% (400 ÷ 600), but your margin is 40% (400 ÷ 1,000).
“I want a 40% margin, so I’ll add 40% to my cost.” ₹600 + 40% = ₹840, which is only a 28.6% margin. To get a true 40% margin you must divide: ₹600 ÷ (1 − 0.40) = ₹1,000. Use the “Cost + margin → price” mode and you’ll never undercharge again.
Formulas to find the right price
| You know | Formula for selling price |
|---|---|
| Cost and target margin | Price = Cost ÷ (1 − Margin%) |
| Cost and markup | Price = Cost × (1 + Markup%) |
| Convert margin → markup | Markup = Margin ÷ (1 − Margin) |
| Convert markup → margin | Margin = Markup ÷ (1 + Markup) |
What is a good profit margin?
It varies hugely by industry. These gross margin ranges are typical:
- Software / SaaS: 70–90%
- Consulting and agencies: 40–60%
- Clothing and fashion retail: 45–60%
- Restaurants (food cost): 60–70% gross, but only 3–10% net after rent and staff
- Grocery and supermarkets: 20–30% gross, 1–3% net
Remember that gross margin (price minus cost of goods) is not net margin. Rent, salaries, marketing, payment fees, shipping, returns and taxes still come out of the gross profit. Put all your per-unit costs into “Cost” for a realistic figure.
Should I include GST in the price?
No. Calculate margins on prices excluding GST. GST is collected on behalf of the government and isn’t your revenue. Work out your price here, then use our GST calculator to add tax on top.