Profit Margin vs Markup — Formulas and Differences

Profit margin and markup both measure how much profit a business makes on a product, but they express it as a percentage of different bases. Confusing the two is a common pricing mistake that can lead to underpricing products or misreporting profitability. For GST-registered Indian businesses, an additional consideration is whether selling price includes or excludes GST — which directly affects the margin available.

Profit Margin and Markup Formulas

Profit Margin (%) = (Selling Price − Cost Price) ÷ Selling Price × 100

Markup (%) = (Selling Price − Cost Price) ÷ Cost Price × 100

Margin is always lower than markup for the same profit amount. A 50% markup gives a 33.3% margin. A 100% markup gives a 50% margin. Retailers typically quote markup while accountants and investors focus on margin.

Worked Example with GST

A clothing retailer sources a kurta for ₹750 (cost price) and sells it at ₹1,200 MRP (inclusive of 12% GST).

• Net selling price (ex-GST) = ₹1,200 ÷ 1.12 = ₹1,071.43
• Profit = ₹1,071.43 − ₹750 = ₹321.43
• Profit Margin = ₹321.43 ÷ ₹1,071.43 × 100 = 30%
• Markup = ₹321.43 ÷ ₹750 × 100 = 42.9%

If the retailer is not GST-registered and cannot claim Input Tax Credit, the ₹128.57 GST paid on the ₹1,200 price becomes a cost — reducing effective margin to about 17.9%. This calculator accounts for GST impact across all applicable rates so you can price products accurately.