The two formulas
Markup measures gross profit as a percentage of cost. Margin measures gross profit as a percentage of selling price. Gross profit here means selling price minus the variable cost of one sale.
- Markup % = (price − unit cost) ÷ unit cost × 100
- Margin % = (price − unit cost) ÷ price × 100
A ₹100 cost example
If unit cost is ₹100 and selling price is ₹150, gross profit is ₹50. The markup is 50% because ₹50 is half of the ₹100 cost. The margin is 33.3% because ₹50 is one third of the ₹150 selling price.
Simple example
A 50% markup does not produce a 50% margin. To earn a 50% margin on a ₹100 unit cost, the selling price must be ₹200.
Why the distinction matters
Businesses often set prices by adding a percentage to cost. Then discuss performance using margin. That is fine when the sales is understood. The mistake is entering a target margin as though it were a markup and accepting a lower result without noticing.
- Use margin when comparing gross profitability against revenue
- Use markup when describing the amount added to cost
- Always name the metric in spreadsheets and conversations
Start with a complete unit cost
Neither formula helps if unit cost omits packaging, payment fees, marketplace fees, shipping contribution or delivery labour. Estimate the variable cost triggered by one sale before testing price.
- Keep fixed startup costs separate
- Use a conservative estimate for uncertain variable costs
- Recalculate after real orders reveal actual costs
Use price as a test
A calculated price is a starting hypothesis. Compare it with the customer's alternatives, test readiness to pay and make sure the resulting contribution can support fixed costs and your time.