A ₹100 sale that cost ₹80 is 20% on selling price, 25% on cost. Gross profit percent on selling price is profit ÷ selling price × 100; the gross profit percentage on cost is profit ÷ cost × 100. The same rupee profit always reads higher on cost, which is why the trade and the accountant often quote different numbers. A salesman who says "I gave him 10% margin" usually means 10% added on cost, while the profit and loss account your CA reads works on sales. To turn a percent on cost (markup) into a percent on selling price (margin), divide it by 100 plus itself: 25 ÷ 125 = 20%. The table below converts the common figures from 10% to 50%, and the worked example takes one three-line invoice, INV/0412, through both formulas so you can see an 11.7% margin and a 13.3% markup are the same ₹6,180.
Key Highlights
- Margin on selling price = profit ÷ selling price × 100. Markup on cost = profit ÷ cost × 100. Same rupees, two percents
- Markup converts to margin as markup ÷ (100 + markup): 25% on cost is 20% on selling price, 50% on cost is 33.3%
- Rates are usually quoted on cost in the trade; the P&L and most margin reports read on selling price
In This Article
- What is gross profit, in rupees and in percent?
- How do I calculate gross profit percentage on cost and on selling price?
- Markup to margin conversion table
- Which one do distributors quote, and which one does the CA read?
- A worked invoice, both ways
- Which percent does Tally show?
- Margin on the invoice in Takkada
- Frequently Asked Questions
What is gross profit, in rupees and in percent?
Gross profit is what a sale leaves after the cost of the goods sold. In rupees there is only one answer: selling price minus cost. If you sold a bag of wall putty for ₹620 and it cost you ₹540, the gross profit is ₹80. Freight you paid out, salaries and rent come later and turn gross profit into net profit.
The confusion starts with the percent. ₹80 is 12.9% of ₹620 and 14.8% of ₹540. Both are correct. They answer different questions: "how much of every rupee I bill is mine" (on selling price) and "how much did I add on top of what I paid" (on cost).
How do I calculate gross profit percentage on cost and on selling price?
| Formula | ₹100 sale, ₹80 cost | |
|---|---|---|
| Gross profit (₹) | Selling price − cost | ₹20 |
| On selling price (margin) | Gross profit ÷ selling price × 100 | 20 ÷ 100 × 100 = 20% |
| On cost (markup) | Gross profit ÷ cost × 100 | 20 ÷ 80 × 100 = 25% |
Two more formulas save a calculator trip:
- Margin from markup: markup ÷ (100 + markup) × 100. A 25% markup is 25 ÷ 125 × 100 = 20%.
- Markup from margin: margin ÷ (100 − margin) × 100. A 20% margin is 20 ÷ 80 × 100 = 25%.
And to price from a target: selling price = cost ÷ (1 − margin). For a 20% margin on an item that costs ₹80, that is 80 ÷ 0.8 = ₹100. Adding 20% to cost gives ₹96, which is only a 16.7% margin.
Markup to margin conversion table
| Markup on cost | Margin on selling price | Cost ₹100 sells at |
|---|---|---|
| 10% | 9.1% | ₹110 |
| 20% | 16.7% | ₹120 |
| 25% | 20% | ₹125 |
| 33.3% | 25% | ₹133.30 |
| 50% | 33.3% | ₹150 |
The gap grows as the percent grows. At 10% the two figures are less than one point apart. At 50% on cost the margin is only a third of the selling price. If you have ever told a customer "I make 50% on this" when your books show 33%, this table is why.
Which one do distributors quote, and which one does the CA read?
Rate talk in the trade is usually on cost. A company scheme says "retailer margin 8%", a salesman adds "10% on purchase rate", and spare-parts price lists are built as cost plus a percent. Our post on rate as cost plus margin for spare parts shows that habit at the counter.
The profit and loss account works the other way. Gross profit sits against sales, so your CA reads gross profit ÷ sales. Lenders and analysts do the same when they ask for your gross margin. When your salesman's figure and your accountant's figure disagree, check the base before you check the arithmetic. Most of the time both are right.
A simple house rule ends the argument: quote rates in markup if your trade does, but review the business in margin, because that is the percent that adds up across invoices and months.
A worked invoice, both ways
Invoice INV/0412 to a hardware shop has three lines. Cost is what each item cost per unit.
| Line | Qty × rate | Sale | Cost per unit | Gross profit | On selling price | On cost |
|---|---|---|---|---|---|---|
| Wall Putty 20 kg | 40 × ₹620 | ₹24,800 | ₹540 | ₹3,200 | 12.9% | 14.8% |
| Wood Glue 1 kg | 24 × ₹310 | ₹7,440 | ₹265 | ₹1,080 | 14.5% | 17.0% |
| PVC Pipe 1 inch 6 m | 50 × ₹410 | ₹20,500 | ₹372 | ₹1,900 | 9.3% | 10.2% |
| Invoice | ₹52,740 | ₹6,180 | 11.7% | 13.3% |
The invoice made ₹6,180 on ₹46,560 of cost. On selling price that is 11.7%; on cost it is 13.3%. Notice that the invoice percent is not the average of the three line percents. Each line is weighted by its rupees, so the big putty and pipe lines pull the total towards their own figures. Always work an invoice or a month from the rupee totals, never by averaging percents.
Which percent does Tally show?
In TallyPrime, open Stock Summary and press F7 (Show Profit). Under Outwards you get Consumption, Gross Profit and a Perc column for each item. For invoices, open the Sales Register, drill into a month and press F7: each voucher shows its value, gross revenue, cost and gross profit. Tally's help adds an F12 option, Show Gross Profits on Gross Value, which works the figures on the value including tax and other ledgers on the bill, so the percent changes when it is on.
Before you quote Tally's percent to anyone, check its base on one item: divide that item's Gross Profit by its sales value and then by its Consumption. Whichever answer matches Perc tells you the base your setup uses. The cost itself depends on the stock valuation method set on the item, so two people with different settings can see different profit on the same sale. Our post on item wise profit in Tally Prime walks through why Stock Summary and Sales Register can disagree, and the gross profit report in Tally post covers the report a distributor reads each month.
Margin on the invoice in Takkada
Takkada puts cost and margin on the sales invoice itself. Open any saved sales invoice on the phone and each line shows Cost, Margin and Margin %, once the owner turns on Show margin on invoice. Margin % on the invoice is on selling price, so INV/0412 above reads 12.9%, 14.5% and 9.3% on its lines, the same as the selling-price column in the table.
Cost is the item's cost for that financial year as your Tally values it. It is not a cost Takkada works out on its own. When a line has no cost yet, such as a new item, tap Add cost and type the cost per unit; it is used for this invoice only and not sent to Tally. Only people you allow to see profit see any of this. Owners and full-access team members see item-wise sales and profit; you choose who else sees reports. The invoice-wise profit for Tally page shows the screens, and every other report sits on the Tally reports on mobile page.
With the MIS Insights add-on: the Gross profit page lets you choose GP % on selling price or on cost, with the app's own example, "A ₹100 sale that cost ₹80 is 20% on selling price, 25% on cost." Part of the MIS Insights add-on. Ask us to switch it on for your business.
Prefer to read this in Hindi? The same formulas are explained हिंदी में.
Frequently Asked Questions
Q: How do I calculate gross profit percentage on cost?
A: Divide the gross profit by the cost and multiply by 100. A bag bought at ₹540 and sold at ₹620 leaves ₹80, and 80 ÷ 540 × 100 is 14.8% on cost. The same sale is 12.9% on selling price.
Q: Is margin on cost or on selling price?
A: In accounting, margin means gross profit as a percent of the selling price, and the percent on cost is called markup. In the trade the word margin is often used for both, so ask which base is meant. A ₹100 sale that cost ₹80 is 20% on selling price and 25% on cost.
Q: What is 25% markup as a margin?
A: 20%. Use markup ÷ (100 + markup) × 100, so 25 ÷ 125 × 100 = 20. An item costing ₹100 sold at ₹125 leaves ₹25, which is a fifth of the selling price.
Q: Which percent does Tally show?
A: Stock Summary with F7 shows a Perc column next to Gross Profit for each item, and the Sales Register with F7 shows cost and gross profit for each invoice. Check the base on one item by dividing its Gross Profit by its sales value and by its consumption before you quote the figure. The F12 option Show Gross Profits on Gross Value changes the figures to include tax and other ledgers on the bill.
Q: Why do my salesman's margin and my accountant's margin differ?
A: Usually because the salesman quotes on cost and the accountant reads on sales. 10% added to cost is 9.1% of the selling price, and 50% on cost is 33.3%. If the bases match and the figures still differ, check that both used the same cost for the item.
Takkada shows cost and margin on every line of a saved sales invoice for the people you allow, from your Tally as of the last sync. Message us on WhatsApp to see it on one of your own invoices.