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Profit Margin vs Markup: The Difference & Worked Examples

Margin and markup describe the same Rs 400 profit — but they divide it by different numbers, so they are never equal. This guide shows both formulas, one worked example, and the mix-up that costs shopkeepers money.

Try it yourself: Profit Margin Calculator — enter your cost and selling price for your own margin and markup.

The formulas

First, profit is the same in both:

Profit = selling price − cost price.

Then the two percentages differ only in what they divide by:

  1. Margin = profit ÷ selling price × 100. Margin answers: of every rupee the customer pays, how much do I keep?
  2. Markup = profit ÷ cost price × 100. Markup answers: by how much did I raise the price above what it cost me?

Because the selling price is always bigger than the cost price (when you make a profit), margin is always smaller than markup on the same sale.

Worked example: cost Rs 800, selling price Rs 1,200

  • Profit = Rs 1,200 − Rs 800 = Rs 400.
  • Markup = Rs 400 ÷ Rs 800 × 100 = 50.00% (profit divided by cost).
  • Margin = Rs 400 ÷ Rs 1,200 × 100 = 33.33% (profit divided by selling price).

Same sale, same Rs 400 profit — but markup is 50% and margin is only 33.33%. If someone says “my margin is 50%” on this sale, they are really quoting markup, and they are overstating the share they keep from each sale.

Reading the calculator

The Profit Margin Calculator shows the same two figures for the same example — profit Rs 400, 50.00% and 33.33% — but note its row labels carefully: the row it labels “Margin on cost” is profit ÷ cost (50.00%), which is markup in standard terms, and the row it labels “Markup on selling” is profit ÷ selling price (33.33%), which is margin in standard terms. The numbers are correct; the labels are swapped relative to standard usage, and a label fix is planned. Until then, read the figures by their divisors: divided by cost = markup, divided by selling price = margin.

Assumptions behind these figures

  • One item, one sale: cost Rs 800, selling price Rs 1,200, no discounts, taxes or delivery charges included.
  • Both percentages are computed from the same profit of Rs 400.
  • Figures are rounded to two decimals (50.00% and 33.33%).

Common mistakes

  1. Calling markup “margin”. The most common mix-up in shops and online selling: a 50% markup is not a 50% margin. If you price by “margin” but use the markup number, you will underprice.
  2. Setting prices from margin without converting. To hit a target margin, work backwards: selling price = cost ÷ (1 − margin). A 40% margin on an Rs 800 cost needs a price of Rs 1,333, not Rs 1,120 (which is only a 40% markup).
  3. Forgetting other costs. Rent, delivery, packaging and platform fees all eat the same Rs 400 — margin on the item price is not net profit.
  4. Chasing the higher number. Markup always looks bigger, so it is tempting to quote it. Compare like with like when checking competitors.

Source and date note

This guide uses pure arithmetic — no market rates or slabs are involved, so the formulas do not go stale. The example figures (cost Rs 800, price Rs 1,200) match the Profit Margin Calculator's own example inputs as of October 2026.

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