"I keep 25% on everything." Two shopkeepers can say this and mean very different things. One means markup, the other means margin, and the difference can wipe out a year's profit.
The two definitions
- Markup is profit as a percentage of cost.
- Margin is profit as a percentage of selling price.
Example: you buy an item for ₹80 and sell it for ₹100. Profit is ₹20.
- Markup = 20 ÷ 80 = 25%
- Margin = 20 ÷ 100 = 20%
Same item, same profit, two different percentages. Margin is always lower than markup.
Conversion table
| Markup on cost | Margin on price |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 50% | 33.3% |
| 100% | 50.0% |
The formulas:
- Margin = Markup ÷ (1 + Markup)
- Markup = Margin ÷ (1 − Margin)
Our margin and markup calculator does both directions instantly.
Pricing from a target margin
If you want a 25% margin on an item that costs ₹600:
Selling price = Cost ÷ (1 − target margin) = 600 ÷ 0.75 = ₹800
A common mistake is to add 25% to cost (₹750). That gives only a 20% margin.
Where GST fits in
If you are GST-registered, GST is not your income. Calculate margin on the price before GST.
Example: cost ₹600 (input GST of ₹108 claimed as credit), selling price ₹800 plus 18% GST = ₹944 charged to the customer. Your margin is still ₹200 on ₹800, or 25%. The ₹144 of GST collected, less the ₹108 credit, goes to the government.
If your MRP or shelf price is GST-inclusive, take the GST out first. For an 18% item, the price before GST is MRP ÷ 1.18. Use the "remove GST" mode of our GST calculator.
If you are a composition dealer, you cannot claim input credit and you pay composition tax on turnover, so include both in your cost.
How discounts eat margin
A discount comes straight out of your profit, not out of your price. On an item with a 20% margin:
| Discount given | Margin left | Extra sales (in rupees) needed to earn the same profit |
|---|---|---|
| 5% | 15.8% | 27% more |
| 10% | 11.1% | 80% more |
| 15% | 5.9% | 240% more |
A 10% discount on a 20%-margin product needs 80% more sales in rupees, which means twice as many units, just to stand still. Check any offer with our discount calculator before you announce it.
Price psychology that works in Indian retail
- Round MRP-style prices (₹99, ₹249) still convert well for packaged goods.
- "Buy 2, get 10% off" often protects margin better than a flat discount, because it raises the bill size.
- Bundle a slow mover with a fast mover instead of discounting the slow mover alone.
Common questions
Which should I use, margin or markup?
Use markup to set prices from cost, and margin to understand profitability and compare products. Most accounts, loan applications and benchmarks talk about margin.
What is a good margin for a kirana shop?
It varies widely by product. Staples like rice, atta and oil often carry thin margins, while snacks, personal care and loose items carry more. Track gross margin by category to see where you actually make money.
This guide is general information to help you understand the topic. It is not legal, tax or financial advice. Rules and rates change; confirm details for your situation with a qualified professional or the official government portal. Read our editorial policy.