Setting the right price for your product is the single most important decision for any business. Set it too high, and you lose customers. Set it too low, and you lose money.
Most business owners (and even MBA students) get confused between two very similar terms: Margin and Markup. Using the wrong one can lead to huge financial losses. This guide—and our calculator—is here to fix that.
Table of Contents:
1. The Battle: Margin vs Markup
They sound the same, they both deal with profit, but they are mathematically very different.
Markup
Markup is calculated on the Cost Price.
"I want to add 20% profit on top of my cost."
Gross Margin
Margin is calculated on the Selling Price.
"20% of my total sales revenue should be profit."
Margin is ALWAYS lower than Markup.
If you want a 50% Margin, you need a 100% Markup!
2. The Gross Margin Formula
To find out how much of your revenue is actually yours to keep, use this formula:
Wait, what if you know the Cost (₹100) and want a 20% Margin? How do you find the Selling Price? The math gets tricky here:
3. Real Life Example
Let's say you run a shoe shop.
- You buy a pair of shoes for ₹1,000 (Cost).
- You want to make a 20% Margin.
Wrong Way (Markup Mistake):
You add 20% of ₹1,000 = ₹200.
Selling Price = ₹1,200.
Actual Margin: (200 / 1200) = 16.6% (Oops! You missed your target).
Right Way (Using Formula):
Selling Price = 1000 / (1 - 0.20) = 1000 / 0.80
Selling Price = ₹1,250.
Check: Profit is ₹250. (250 / 1250) = 20%. Perfect!
4. How to use our Margin Calculator?
Don't struggle with the division formulas. Our tool does it for you.
- Enter Cost: The price you paid to buy/make the item.
- Enter Revenue (or Desired Margin): The price you sold it for.
The calculator will instantly show you:
- Gross Profit: The amount you earned.
- Markup %: How much you marked up.
- Gross Margin %: Your actual efficiency.
Price Your Products Correctly
Use our free tool to ensure you never lose money.
Calculate Margin Now