The Fatal Pricing Mistake: Margin vs Markup
Confusing markup with profit margin is one of the most common causes of business bankruptcy. While both use Cost of Goods Sold (COGS) and Revenue, their denominators are completely different:
- Markup is the percentage added to the Cost: $$\text{Markup} = \frac{\text{Revenue} - \text{Cost}}{\text{Cost}} \times 100$$
- Gross Profit Margin is the percentage of Revenue that is profit: $$\text{Margin} = \frac{\text{Revenue} - \text{Cost}}{\text{Revenue}} \times 100$$
Concrete Example
If you buy an item for ₹100 and sell it for ₹150:
- Your profit is ₹50.
- Your Markup is
(50 / 100) * 100 = 50%. - Your Margin is
(50 / 150) * 100 = 33.3%.
If you budget for a 50% margin but price using a 50% markup, you are leaving 16.7% of your revenue on the table!
Calculate your margins with the Profit Margin Calculator on Tools24Now.