Margin vs markup, and commission

In a real company

Merchandiser, sales, buying house

"18% margin" and "18% markup" are different prices. Mixing them up is one of the most common pricing mistakes — and it comes straight out of your profit.

Key ideas

• Margin is profit as a % of the selling price: Price = Cost ÷ (1 − Margin%).
• Markup is profit as a % of cost: Price = Cost × (1 + Markup%).
• Commission on the final price works like margin: Gross = Net ÷ (1 − Rate).

Formula

Price for a margin

= Cost ÷ (1 − Margin%)

Markup %

= (Price − Cost) ÷ Cost × 100

Gross with commission

= Net ÷ (1 − Commission%)

Worked example

Cost ₹420. The owner wants an 18% margin. Separately, an agent wants 5% commission on a ₹500 net price.

1. 1Price = 420 ÷ 0.82 = ₹512.20 (profit ₹92.20)
2. 2That is a 21.95% markup, not 18%
3. 3Commission: 500 ÷ 0.95 = ₹526.32 → agent gets ₹26.32

✅ Sell at ₹512.20 for an 18% margin; quote ₹526.32 to keep ₹500 after 5% commission.

Common mistakes

• Price = cost × 1.18 when the target is an 18% margin (that gives only 15.25% margin).
• Adding 5% to the net price for commission — you lose money.
• Comparing margin % of one order with markup % of another.

Quick quiz

Answer 2 of 3 correctly to complete the lesson.

1. 1. Cost ₹80, target margin 20%. Price?

   ₹96₹100₹64₹120

2. 2. Cost ₹100, price ₹125. Markup?

   20%25%125%80%

3. 3. Net ₹950 must remain after 5% commission. Quote?

   ₹997.50₹1,000₹945₹955