Margin and markup are not the same thing
This is the most expensive piece of confusion in small business pricing. Both describe the gap between cost and price. They divide by different things.
- Margin = profit ÷ selling price. It answers: what fraction of my revenue do I keep?
- Markup = profit ÷ cost. It answers: how much did I add on top of what I paid?
A 50% markup is a 33.3% margin. If you set prices believing you have a 50% margin when you actually have 33%, every discount, every commission and every ad budget decision built on that number will be wrong.
The formulas
Margin = Profit ÷ Selling price × 100
Markup = Profit ÷ Cost price × 100
Worked example
Cost ₹700, price ₹1,000
- Cost price
- ₹700.00
- Selling price
- ₹1,000.00
- Profit per unit
- ₹300.00
- Margin
- 30.00%
- Markup
- 42.86%
Markup to margin conversion
| Markup on cost | Resulting margin | Price if cost is ₹1,000 |
|---|---|---|
| 20% | 16.7% | ₹1,200 |
| 25% | 20.0% | ₹1,250 |
| 50% | 33.3% | ₹1,500 |
| 100% | 50.0% | ₹2,000 |
| 150% | 60.0% | ₹2,500 |
| 300% | 75.0% | ₹4,000 |
Read the table in the direction you actually work. Most people set prices by markup and then get judged on margin — by lenders, by investors, and by their own cash flow.
Margin for service businesses
If you sell time rather than goods, your "cost price" is not zero — it is the fully loaded cost of delivering the work. For a small agency that means salaries and contractor fees for the hours spent, plus a share of software subscriptions, plus the unbilled hours spent selling the job in the first place.
A useful rule of thumb: take the direct delivery cost and add 30 to 40 percent before calculating margin. Agencies that skip this consistently discover that 40% "margin" work is running at break-even once overheads are honestly allocated.
Why margin decides your ad budget
Your gross margin sets the maximum you can pay to acquire a customer. At 30% margin, a ₹1,000 sale generates ₹300 of gross profit — so any cost per acquisition above ₹300 loses money on the first purchase. Expressed as return on ad spend, you need at least 3.33× just to break even.
Frequently asked questions
What is a good profit margin?
It depends entirely on the model. Grocery retail runs on single-digit margins and survives on volume. Software can exceed 80%. Service businesses in India commonly target 30% to 50% gross margin before overheads. Compare against your own sector, not a general figure.
Should I calculate margin before or after GST?
Before. GST is collected on behalf of the government and passed through, so it is not your revenue. Always use tax-exclusive figures for both cost and selling price.
How do I convert markup to margin?
Margin = markup ÷ (100 + markup), expressed as a percentage. A 50% markup gives 50 ÷ 150 = 33.3% margin.
What is the difference between gross and net margin?
Gross margin covers only direct costs of delivery. Net margin subtracts everything else — rent, salaries, marketing, interest and tax. This calculator computes gross margin.