Markup is not margin, and the difference costs you money

You buy an item for ₱250. You add 40 percent. You sell it at ₱350.

Then a competitor runs a sale, so you decide to give 30 percent off. You still have 10 percent left, you think. Ten percent of something is better than nothing.

You do not have 10 percent left. At 30 percent off you are selling that item for ₱245. You bought it for ₱250. You are losing ₱5 on every single one you sell, and the more you sell, the more you lose.

That is what happens when markup gets mistaken for margin. They are two different numbers, and it is one of the most common pricing mistakes I see.

Two words, two different bases

Both words describe the same peso amount — the gap between what you paid and what you charged. What changes is what you divide that gap by.

Markup: the base is your cost

Markup % = (Selling price − Cost) ÷ Cost × 100

Markup answers: how much did I add on top of what I paid?

Margin: the base is your selling price

Margin % = (Selling price − Cost) ÷ Selling price × 100

Margin answers: out of every peso the customer hands me, how much is left after I replace the item?

Take the ₱250 item sold at ₱350. The gap is ₱100 either way.

• Markup: ₱100 ÷ ₱250 = 40%
• Margin: ₱100 ÷ ₱350 = 28.57%, or 28.6%

Same ₱100. Same sale. One number is 40, the other is 28.6. Neither is wrong. They just answer different questions, and only one of them tells you how much room you actually have.

A cleaner one to hold in your head: if you buy something for ₱50 and sell it for ₱100, you doubled the price. That is a 100 percent markup. But your margin is 50 percent, because half of the ₱100 the customer gave you goes straight back out to buy the next unit.

Two more clean examples

Say Aling Nena runs a sari-sari store. She buys a sachet item for ₱24 and sells it at ₱30. Her gross profit is ₱6.

• Markup: 6 ÷ 24 = exactly 25%
• Margin: 6 ÷ 30 = exactly 20%

Say Kuya Boyet runs a carinderia. One serving costs him ₱39 in ingredients and he sells it at ₱65. His gross profit is ₱26.

• Markup: 26 ÷ 39 = 66.7%
• Margin: 26 ÷ 65 = exactly 40%

Boyet would tell you he prices at "almost 70 percent." What he keeps out of every peso is 40 centavos, before he has paid for anything else.

These are made-up people and made-up numbers, used only to show the arithmetic. Your own figures will be different.

Your markup, and what it is really giving you

Find your usual markup on the left. The right column is the margin it actually produces.

| If your markup is | Your margin is really | |---|---| | 10% | 9.1% | | 15% | 13.0% | | 20% | 16.7% | | 25% | 20.0% | | 30% | 23.1% | | 33.3% | 25.0% | | 35% | 25.9% | | 40% | 28.6% | | 45% | 31.0% | | 50% | 33.3% | | 60% | 37.5% | | 75% | 42.9% | | 100% | 50.0% | | 150% | 60.0% | | 200% | 66.7% |

The formula behind the table, if you want to check any row yourself:

Margin = Markup ÷ (1 + Markup)

Using decimals: 0.40 ÷ 1.40 = 0.2857, which is 28.6 percent.

Notice how far apart the two numbers are at the low end. A 20 percent markup — which sounds like a fifth of the price — leaves you 16.7 percent. And notice that the gap never closes. Markup is always the bigger-sounding number. That is exactly why it is the number that gets quoted, and the one that gets you into trouble.

I will not tell you what markup is normal for your kind of business. No agency publishes that figure for Philippine sari-sari stores, carinderias, or online sellers, and anyone who gives you a benchmark is guessing. The right number depends on your own costs and your own market.

Where the mistake costs real money

Back to the ₱250 item priced at ₱350 on a 40 percent markup. Here is what discounts do to it.

| Discount | New price | Gross profit | Margin | |---|---|---|---| | 10% off | ₱315.00 | ₱65.00 | 20.6% | | 20% off | ₱280.00 | ₱30.00 | 10.7% | | 25% off | ₱262.50 | ₱12.50 | 4.8% | | 28.5714% off | ₱250.00 | ₱0.00 | 0% — exactly cost | | 28.6% off | ₱249.90 | −₱0.10 | below cost | | 30% off | ₱245.00 | −₱5.00 | below cost | | 40% off | ₱210.00 | −₱40.00 | below cost |

Look at the 20 percent row. It feels like a modest sale. It removes ₱70 from a ₱100 gross profit — you keep ₱30 out of the ₱100 you had.

Look at the 25 percent row. Quarter off. You are down to ₱12.50 per unit, from ₱100.

And the 30 percent row is the one that does damage without announcing itself. The owner thinks a 40 percent markup can absorb a 30 percent discount. It cannot. It puts them ₱5 under cost per unit. The stock moves, the register looks busy, and the money is going backwards.

Now look at the two rows in the middle, and at how little separates them. This item's margin is not a tidy 28.6 percent. Worked out exactly, it is 100 ÷ 350 = 28.5714 percent. Discount by exactly that and you land on ₱250.00 — your cost, to the centavo. Round the same figure up to 28.6 percent and use that as your limit, and the price falls to ₱249.90. Ten centavos under. It is a small number, but it is the whole lesson in miniature: rounding your limit up moves you to the wrong side of cost.

The rule worth memorising

The largest discount you can give before you sell below cost is exactly your margin percentage — never your markup percentage.

And when you write that margin down to use as a limit, round it down, never up. A limit rounded up is not a limit. Here, 28.5714 percent becomes 28.5 percent, not 28.6 percent. You give up a fraction of a peso and you stay above cost, which is the point of having the number at all.

This is the same instinct as the price rounding further down this page, pointing the other way. Round the price up. Round the discount limit down. Both times you round in the direction that protects you.

So if you only ever remember one thing from this post: before you announce a sale, look up your margin, not your markup. Your margin is your ceiling.

What a discount asks of your volume

There is a second piece of arithmetic here that is easy to skip. At full price that item earned ₱100 gross profit per unit. After a discount it earns less, so you would need to sell more units to end up with the same peso gross profit:

• 10% off (₱65 per unit): about 1.5 times the units
• 20% off (₱30 per unit): about 3.3 times the units
• 25% off (₱12.50 per unit): exactly 8 times the units

That is arithmetic, not a forecast. It says nothing about whether a discount will actually bring more customers through your door. It only tells you how much more you would have to sell to break even on the decision — and eight times is a lot to ask of a sale.

Price from the margin you want instead

Stop starting from cost and adding. Start from the margin you want and work backwards.

Price = Cost ÷ (1 − target margin)

At a cost of ₱250:

• For a 25% margin: 250 ÷ 0.75 = ₱333.33
• For a 30% margin: 250 ÷ 0.70 = ₱357.14
• For a 35% margin: 250 ÷ 0.65 = ₱384.62
• For a 40% margin: 250 ÷ 0.60 = ₱416.67

Some land beautifully. Cost ₱65 at a 35 percent margin gives 65 ÷ 0.65 = ₱100.00 exactly. Cost ₱18 at a 25 percent margin gives 18 ÷ 0.75 = ₱24.00 exactly.

If you would rather keep working in markup, this table converts the other way — pick the margin you want, apply the markup beside it:

| Margin you want | Markup to apply | |---|---| | 10% | 11.1% | | 15% | 17.6% | | 20% | 25.0% | | 25% | 33.3% | | 30% | 42.9% | | 35% | 53.8% | | 40% | 66.7% | | 45% | 81.8% | | 50% | 100% | | 60% | 150% |

Round up, never down

You do not want a price tag reading ₱384.62. Round it to ₱385 and the margin rises slightly to 35.06 percent. Round it down to ₱380 and you have quietly given some of your margin away.

Always round up to the next ₱5. Rounding down looks friendlier and eats the exact thing you just did the arithmetic to protect.

None of this works if "cost" is wrong

Every number above assumes you know what one unit actually costs you. Not the price on the supplier's receipt — the landed cost.

Landed cost includes the purchase price, plus the fare or delivery to get it to you, plus the packaging that goes out with it: the bag, the cup, the lid, the straw, the label, the tape.

For cooked food it is the ingredient cost of one serving, including the gas and oil actually used for that serving — not the price of the whole sack of rice or the whole bottle of oil.

If you understate cost, every margin figure you calculate will be higher than the truth, and you will believe you have room you do not have.

Gross margin is not profit

This matters enough to say plainly. Margin is what is left after you replace the item. That is all.

Rent, electricity, water, gas, wages, transport, platform and payment fees, and taxes are all still unpaid out of that margin. If you sell online, platform fees and payment fees reduce what actually reaches your account — check your own current seller fee schedule, because those rates change and they are not the same for everyone.

So do not read a 28.6 percent margin as 28.6 percent profit. It is not. It is the pool that everything else still has to come out of.

One tax note

If you are VAT-registered, the price on your tag includes 12 percent VAT, and that VAT is not yours — it is collected for the Bureau of Internal Revenue. Compute your margin on the VAT-exclusive price and the VAT-exclusive cost, so that both sides of the calculation are on the same basis.

Under Revenue Regulations No. 13-2018, a seller of goods or services stays outside VAT while gross annual sales and receipts do not exceed ₱3,000,000. Treat that figure as a starting point, not a permanent one: the Ease of Paying Taxes Act requires the threshold to be adjusted every three years based on the Consumer Price Index published by the Philippine Statistics Authority. Confirm the current amount and what applies to your registration with the BIR or your accountant. I am not one, and this is arithmetic, not tax advice.

Do this today

Pick your three best-selling items. Only three.

For each one, write down the landed cost, write down the price you charge, and compute the margin: (price − cost) ÷ price.

Round that margin down to the nearest whole or half percent — down, not up — and write it on the same card or sheet where you keep the price. That single number is now your discount ceiling for that item — the most you can take off before the sale costs you money — and it is the number to look at the next time someone tells you to run a promo.

The biggest discount you can survive is your margin, not your markup. Know that number for every item you sell, and round it down before you rely on it.