Margin and markup are not the same number. Price to a target margin, and see why 10% + 5% is not 15% and when a cash discount is worth borrowing for.
By Manoj Sahukar· October 2026 · 13 min read
How numbers are rounded on these pages. Calculations are done at full precision and rounded only at the end, half up. Rupee amounts are rounded to the nearest rupee unless shown with paise, in which case to the nearest paisa. Percentages are shown to two decimal places, and days to one decimal place. Break-even quantities and reorder levels are rounded up to the next whole unit, because rounding down would leave you short. Economic order quantity is rounded to the nearest whole unit. Interest for a number of days uses a 365-day year. All examples and quiz questions are Hypothetical: they show the method, not real prices or rates.
Margin and markup
Both words describe the same rupees of profit on a sale. The difference is what you divide by. Margin compares the profit with the selling price. Markup compares the same profit with the cost. Because cost is smaller than selling price, the markup percentage is always bigger than the margin percentage for the same sale.
This matters most when you set prices. If you want to keep 20 paise of every rupee you sell, adding 20% to your cost is not enough. You must divide your cost by 0.80.
What one unit costs you. For pricing, use the landed cost: purchase price plus freight, loading and any other cost of getting it to your shelf. If you are GST-registered and claim input tax credit, use cost excluding GST.
Gross margin (margin)
Selling price minus cost, as a percentage of the selling price. It is before rent, salaries and other running expenses.
Markup
Selling price minus cost, as a percentage of the cost.
Worked examples
HypotheticalBasicMargin and markup on a carton of soap
A distributor buys a carton of soap for ₹800 and sells it to a kirana shop for ₹880.
Profit per carton = ₹880 − ₹800 = ₹80
Markup = ₹80 ÷ ₹800 × 100 = 10.00%
Margin = ₹80 ÷ ₹880 × 100 = 9.09%
Same ₹80, two different percentages.
HypotheticalIntermediatePricing to a target margin
A shop owner wants a 20% margin on an item that costs ₹400.
Common mistake: adding 20% to cost gives ₹480. The margin is then only ₹80 ÷ ₹480 = 16.67%, not 20%.
HypotheticalAdvancedLanded cost, target margin and a round price
A distributor buys a case for ₹1,150. Freight is ₹23 per case and loading ₹12 per case. He wants a 6% margin.
Landed cost = ₹1,150 + ₹23 + ₹12 = ₹1,185
Price for a 6% margin = ₹1,185 ÷ 0.94 = ₹1,260.64
He rounds the price up to ₹1,261. Actual margin = ₹76 ÷ ₹1,261 = 6.03%, and markup = ₹76 ÷ ₹1,185 = 6.41%.
Had he priced on the purchase price alone (₹1,150 ÷ 0.94 = ₹1,223.40), freight and loading would have eaten most of his margin.
Trade, chain and cash discounts
A trade discount is a cut from the list price that a supplier gives to traders, usually shown on the invoice. A chain discount (also called successive discounts) is two or more trade discounts applied one after the other, such as “10% + 5%”. The second discount is taken on the price after the first, so 10% + 5% is less than 15%.
A cash discount is a reward for paying early, such as “2/10, net 30”: 2% off if you pay within 10 days, otherwise the full amount is due in 30 days. Skipping a cash discount is like borrowing from your supplier for the extra days, and that borrowing is often very expensive.
A competitor offering a flat 15% would charge ₹8,500, which is ₹50 cheaper.
HypotheticalAdvancedIs the cash discount worth borrowing for?
A supplier's terms are “2/10, net 30” on a bill of ₹1,00,000. You can pay ₹98,000 on day 10 or ₹1,00,000 on day 30.
Waiting 20 more days costs you ₹2,000 on ₹98,000 of money.
Implied annual cost (simple) = 2 ÷ 98 × 365 ÷ 20 × 100 = 37.24% a year. If you think of it as compounding every 20 days, it is about 44.59%.
If your bank limit costs 12% a year, borrowing ₹98,000 for 20 days costs ₹98,000 × 12% × 20 ÷ 365 = ₹644.38.
You save ₹2,000 and pay ₹644.38 interest: a net gain of ₹1,355.62. Take the discount.
Quiz: margins, markups and discounts
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