business · · Updated
Profit Margin vs Markup: Pricing, GST and Discounts Worked Out
By Chirag
Markup and margin are both built from the same two numbers, cost and selling price, but they divide by different things. Markup is profit as a share of cost. Margin is profit as a share of the selling price. A product that costs ₹100 and sells for ₹150 has a 50% markup and a 33.3% margin. Mixing the two up changes the price you charge, and two more things change what you actually keep: GST and discounts.
The conversion table
| Markup | Margin |
|---|---|
| 10% | 9.1% |
| 25% | 20.0% |
| 50% | 33.3% |
| 66.7% | 40.0% |
| 100% | 50.0% |
| 150% | 60.0% |
| 200% | 66.7% |
| 300% | 75.0% |
The formulas behind it:
- Margin = markup ÷ (100 + markup), both in percent.
- Markup = margin ÷ (100 − margin).
Margin can never reach 100% (that would mean the item cost nothing), while markup has no ceiling.
Pricing for a target margin
Suppose an item costs you ₹600 and you want a 40% margin. The price is:
Price = cost ÷ (1 − margin) = ₹600 ÷ 0.60 = ₹1,000.
The common mistake is to add 40% to the cost: ₹600 × 1.40 = ₹840. That's a 40% *markup*, and its margin is only (840 − 600) ÷ 840 = 28.6%. On every sale you'd keep ₹240 instead of the ₹400 you planned.
If a pricing tool, spreadsheet or marketplace form asks for a markup, convert your margin target first with the table above: a 40% margin needs a 66.7% markup.
GST: work out margin before tax
If you're registered for GST, the tax you charge isn't revenue: you collect it and pay it to the government. Price the ₹1,000 item above, add 18% GST, and the customer pays ₹1,180. Calculating margin on that figure gives (1,180 − 600) ÷ 1,180 = 49.2%, which looks healthy and is wrong. Your margin is still 40% on the ₹1,000 you keep.
The same applies on the cost side. If you can claim input tax credit on what you bought, your cost for margin purposes is the price before GST. The GST Calculator takes the tax out of an inclusive price in one step.
What a discount really costs
A discount comes straight out of profit, not out of the price in general. Starting from the ₹1,000 item that costs ₹600:
| Discount | Price | Profit per unit | Margin | Extra units needed to earn the same profit |
|---|---|---|---|---|
| None | ₹1,000 | ₹400 | 40.0% | — |
| 10% | ₹900 | ₹300 | 33.3% | 33% more |
| 20% | ₹800 | ₹200 | 25.0% | 100% more (twice as many) |
A 10% discount cuts profit per unit by 25%, so you need a third more sales just to stand still. A 20% discount halves profit per unit and means selling twice as many. The thinner the margin to begin with, the faster this bites: on a 20% margin product, a 20% discount leaves no profit at all.
A quick sense check
- Markup is always the bigger number of the two, except at zero, where both are 0.
- If a supplier or marketplace says "margin", check which formula they use; some tools say margin and calculate markup.
- To see how many units cover your fixed costs at a given price, the Break-Even Calculator takes the cost per unit, the price and your fixed costs.
Related guides
- How to Calculate GST in India — Step by Step · The two GST formulas (adding tax and removing it), how the amount splits into CGST + SGST or IGST, and worked examples for discounts and invoices that mix tax rates.
- ROI, Payback and Depreciation: One Purchase, Worked Through All Three · A ₹2,40,000 coffee machine run through payback period, ROI, annualized ROI and straight-line depreciation, why the annualized figure understates a machine that pays back monthly (25.9% vs 74.3%), and what depreciation does to reported profit.
- How to Set Your Freelance Hourly Rate Without Underpricing Yourself · A ₹12 lakh income target turned into an hourly rate step by step, which input moves the rate most (billable hours, not overhead), why the naive 2,080-hour rate is half what you need, and how GST sits on top of the fee.