Markup vs Margin: How to Price Your Products Without Losing Money

A trader buys a bag of rice for ₦60,000. "I will add 25% and be happy," she says. She sells it for ₦75,000. She thinks she makes a 25% profit.

She does not. And that small mistake, repeated on every sale, is how some businesses stay busy and still run short of cash.

This guide explains the difference between markup and margin in plain words, and gives you a formula you can use today.

Two words, two different numbers

Markup is how much you add on top of your cost.

Margin is how much of the selling price is your profit.

Same sale, two different ways to look at it. Here are the formulas:

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

Look at the bottom of each fraction. One divides by cost, the other by price. That is the whole difference.

The rice example

Cost ₦60,000. Selling price ₦75,000. Profit is ₦15,000.

• Markup = 15,000 ÷ 60,000 = 25%
• Margin = 15,000 ÷ 75,000 = 20%

So a 25% markup is only a 20% margin. For every ₦100 she collects, ₦20 is profit, not ₦25.

Why does it matter? Because your bills, your rent and your salary come out of the price customers pay. When you plan to keep 25% of the price and you really keep 20%, your numbers will not add up at the end of the month.

If you want a certain margin, use this formula

Suppose you want to keep 25% of the price as profit. Many people think "add 25%". The correct formula is:

Selling price = Cost ÷ (1 − margin)

With a cost of ₦60,000 and a margin of 25% (0.25):

Selling price = 60,000 ÷ (1 − 0.25) = 60,000 ÷ 0.75 = ₦80,000

Check it: profit is ₦20,000. And ₦20,000 ÷ ₦80,000 = 25%. Correct.

Notice that the right price is ₦80,000, but the "add 25%" method gave ₦75,000. That is a ₦5,000 difference on one bag.

A quick table

Illustrative example. The cost is ₦10,000 for each line. These are only examples to show the pattern.

Margin you want	Price you need	Same as a markup of
10%	₦11,111	11.1%
20%	₦12,500	25%
25%	₦13,333	33.3%
30%	₦14,286	42.9%
40%	₦16,667	66.7%
50%	₦20,000	100%

See how a 50% margin needs a 100% markup? That is why "I only add 50%" often leaves too little.

Your real cost is more than the price you paid

The price on the supplier's invoice is not your cost. Count everything it takes to get the product into the customer's hand:

• What you paid the supplier
• Transport to your shop or store
• Packaging
• Delivery you pay for, if you offer free or reduced delivery
• Payment fees, if customers pay through a gateway
• Items that get damaged, spoil or are returned
• Shop rent, data, staff pay and your own time, shared across your products

If you do not count these, your "profit" is not profit. It is a number that will disappear at the end of the month. For packaging, see Packaging Suppliers for Small Nigerian E-commerce Businesses. For delivery, see How to Reduce Failed Deliveries.

Add the payment fee the right way

If a gateway takes a percentage of every sale, the fee is on the price, not on your cost. Use this version:

Selling price = Cost ÷ (1 − margin − fee%)

Illustrative example. Suppose the cost is ₦10,000, you want a 25% margin, and the fee is 1.5% (a made-up number, check your gateway's real rate).

Price = 10,000 ÷ (1 − 0.25 − 0.015) = 10,000 ÷ 0.735 = ₦13,605

Without the fee, the price would have been ₦13,333. The difference is small per item, but it matters over a month of sales.

What to do when the customer says "your price is too high"

Before you cut the price, try these in order:

1. Show what they get: warranty, fast delivery, real photos, good packaging.
2. Offer a smaller size or quantity at a lower price, instead of cutting your margin.
3. Offer a bundle: two items for a better total.
4. If you must drop the price, check the margin first. Sell only if the new price still leaves a profit after all costs.

A sale with no profit is a gift.

Simple pricing checklist

• ☐ I know the real cost of each product, with transport, packaging and fees.
• ☐ I decided the margin I need (not just a markup).
• ☐ I used the formula to find the price.
• ☐ I checked the price against two or three competitors, without copying blindly.
• ☐ I know my lowest price: the point where I break even.
• ☐ I review prices when my supplier's prices change.

A word for VTU and digital sellers

The same maths applies if you sell airtime, data or other digital products, where margins are small and costs change often. Read How to Price Your Data Plans for Maximum Profit for an example from that world.

If you are putting your products online and want a store where you set prices, delivery fees by state and discount codes yourself, see our e-commerce solution.