Margin vs markup
Both compare profit to a price, but to different prices.
- Margin = profit ÷ selling price × 100. It tells you how much of every rupee of sales you keep.
- Markup = profit ÷ cost × 100. It tells you how much you add on top of what you paid.
To get a selling price: from a margin, selling price = cost ÷ (1 − margin ÷ 100); from a markup, selling price = cost × (1 + markup ÷ 100).
Worked example
You buy a pressure cooker for ₹800 before GST and sell it for ₹1,000 before GST. Profit is ₹200. Margin = 200 ÷ 1,000 = 20%. Markup = 200 ÷ 800 = 25%. If the cooker is taxed at 5%, the customer pays ₹1,050 and you pass ₹50 to the government.
If you had said “I want a 25% margin” and simply added 25% to the cost, you would charge ₹1,000 and get only a 20% margin. For a true 25% margin the price must be 800 ÷ 0.75 = ₹1,066.67.
| Markup on cost | Margin on sale |
|---|---|
| 10% | 9.09% |
| 20% | 16.67% |
| 25% | 20% |
| 33.33% | 25% |
| 50% | 33.33% |
| 100% | 50% |
Where GST fits
For a regular GST-registered business, GST is not part of your cost or your income. The GST you pay on purchases comes back as input tax credit, and the GST you collect on sales goes to the government. So margin and markup should be worked out on prices before GST. If your purchase bill and shelf price include GST at the same rate, tick “Prices I entered include GST” and the calculator removes it from both first.
Composition dealers are different: they cannot claim input tax credit, so the GST on purchases is part of their real cost. If you are on the composition scheme, enter your purchase cost including GST, leave the box unticked and set the GST rate to 0%; the tax you pay on turnover (1% for most traders and manufacturers, 5% for restaurants and 6% for some service providers) is a cost to deduct from the margin.
Common mistakes
- Calling markup “margin”. A 30% markup is only a 23% margin.
- Calculating margin on GST-inclusive prices when cost and sale carry different GST rates. Strip GST first.
- Forgetting discounts. Work out the margin on the price after discount, which is also the taxable value on your invoice.
- Ignoring freight, packing and payment charges that belong in the cost.
Invoiqo’s bill-wise profit report shows the sale value, the cost of the goods and the margin for each invoice, so you can see which sales really earn money.
Official sources
- CBIC tax information portal (CGST Act, Rules and notifications): section 16 of the CGST Act (input tax credit) and section 10 (composition levy).
Checked on 28 October 2026.