Margin and markup use different starting points
Margin measures profit as a share of selling price; markup measures it as a share of cost. Buy an item for ₹80 and sell it for ₹100, and the ₹20 difference is a 20% gross margin but a 25% markup. The rupee amount is identical, while the percentage changes with the denominator.
Go deeper
Ask what the percentage divides by
An item costing ₹80 and selling for ₹100 creates a ₹20 difference before other expenses. Two common percentages describe that same amount.
- Gross margin: ₹20 divided by ₹100 selling price equals 20%.
- Markup: ₹20 divided by ₹80 cost equals 25%.
Confusing the two changes pricing calculations. Adding a 20% markup to an ₹80 cost gives a ₹96 selling price. The resulting ₹16 gross profit is about 16.67% of revenue, not 20%.
These calculations describe gross profit on the item. Rent, salaries, payment charges and other expenses may still need to be deducted to determine broader profitability. A percentage has little meaning until both its numerator and its denominator are clear.