How Discounts, Markups, and Profit Margins Are Actually Calculated

"Markup" and "margin" get used interchangeably in everyday conversation, but confusing the two is one of the most common — and costly — pricing mistakes a small business can make, since they're calculated from different bases entirely.

Calculating a straightforward discount

A percentage discount reduces the original price by that share of itself:

Sale price = Original price × (1 − discount rate)

A ₹2,000 item at 25% off becomes ₹2,000 × 0.75 = ₹1,500.

Stacked discounts don't add up the way people expect

Two discounts of 20% and 10% applied one after another do not equal a flat 30% off. Applying 20% first brings ₹2,000 to ₹1,600; applying 10% to that gives ₹1,440 — a combined discount of 28%, not 30%. Each discount applies to the already-reduced price, not the original.

Markup vs. margin: the mix-up that costs money

	Markup	Margin
Calculated on	Cost price	Selling price
Formula	(Selling price − Cost) ÷ Cost	(Selling price − Cost) ÷ Selling price
Example (₹100 cost, ₹150 sale)	50% markup	33.3% margin

A 50% markup and a 50% margin describe two different selling prices for the same ₹100 cost item — a 50% margin actually requires a ₹200 selling price, not ₹150. Businesses that price using markup when they meant to target a margin (or vice versa) routinely under-price without realizing it.

Working backward from a target sale price

To find the original price before a known discount was applied, divide rather than subtract:

Original price = Sale price ÷ (1 − discount rate)

A ₹1,500 sale price after a 25% discount means the original was ₹1,500 ÷ 0.75 = ₹2,000 — subtracting 25% of ₹1,500 instead would give the wrong answer.

Frequently asked questions