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BusinessOctober 05, 20234 min read

Margin vs Markup: Understanding Profit Metrics

Pricing Your Products Right

One of the most common mistakes new business owners make is confusing profit margin with markup. While both metrics deal with profit, they represent fundamentally different calculations.

What is Margin?

Margin (specifically Gross Margin) is sales minus the cost of goods sold, divided by your sales revenue. It shows what percentage of your total sales price is profit.

Example: If you sell a shirt for ₹100 and it cost ₹60 to make, your margin is 40%.

What is Markup?

Markup is the amount by which you increase the cost of a product to arrive at the final selling price.

Example: Taking that same ₹60 shirt, if you added 40% markup, you would sell it for ₹84 (not ₹100). To reach a ₹100 selling price from a ₹60 cost, you actually need a 66.6% markup.

Use our Profit Margin Calculator to quickly transition between these numbers.

FTV

Written by FreeToolsVault Team

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