Question 1

What is the difference between margin and markup?

Accepted Answer

Both use the same profit but compare it with different prices. Margin is profit as a share of the selling price; markup is profit as a share of the cost. Buying at Rs. 100 and selling at Rs. 125 is a 25% markup but a 20% margin.

Question 2

How do I set a price for a 20% margin?

Accepted Answer

Divide the cost by (1 − 0.20). A product that costs Rs. 100 must sell for Rs. 125 to make a 20% margin. For a 20% markup, multiply the cost by 1.20 instead (Rs. 120).

Question 3

How do I calculate profit margin?

Accepted Answer

Take the cost from the selling price to get the profit, then divide the profit by the selling price and multiply by 100. Rs. 25 profit on a Rs. 125 sale is a 20% margin.

Question 4

Should I include VAT when working out margin?

Accepted Answer

If your business is VAT-registered, use prices without the 13% VAT: you pass the VAT on to the government, so it isn't profit. If you are not VAT-registered, the VAT you pay on purchases is part of your cost.

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Margin vs markup

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