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Profit Margin vs Markup: Pricing for Kenyan Businesses
5 min read · Updated 15 October 2026 · More business tools
Margin and markup are both ways of describing profit, but they are calculated differently and mixing them up is one of the most common pricing mistakes for small businesses.
Getting the distinction right helps you set prices that actually cover costs and leave the profit you intended.
Margin and markup are different
- Markup is profit as a percentage of the cost price.
- Margin is profit as a percentage of the selling price.
- Markup is always the larger of the two for the same sale.
Worked example
| Item | Value |
|---|---|
| Cost price | KSh 70 |
| Selling price | KSh 100 |
| Gross profit | KSh 30 |
| Gross margin (30 / 100) | 30% |
| Markup (30 / 70) | 42.9% |
Good to know: A 30% markup is only a 23% margin. If a supplier says you can make 30% on a product, clarify whether they mean margin or markup.
Getting the price you want
If you start from a target margin, the markup you need is larger. The required markup is the target margin divided by one minus that margin.
Markup needed for a target margin
| Target margin | Required markup | Cost KSh 100 sells at |
|---|---|---|
| 20% | 25% | KSh 125 |
| 30% | 42.9% | KSh 143 |
| 50% | 100% | KSh 200 |
Do not forget costs and tax
- Gross margin ignores operating expenses. Net profit margin subtracts rent, salaries, transport and other overheads.
- If you are VAT registered, calculate margin on the VAT-exclusive price, not the price the customer pays.
- Delivery, packaging, commissions and payment fees should be treated as part of the cost.
- Check that your selling price still covers fixed costs at realistic sales volumes.
Good to know: A product with a healthy gross margin can still lose money once a whole month of rent, wages and overheads is accounted for.
Try the calculators
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Quick Answers
Profit Margin vs Markup for Kenyan Businesses FAQs
What is the difference between margin and markup?
Markup is profit as a percentage of cost, while margin is profit as a percentage of the selling price. For a product costing KSh 70 and selling for KSh 100, the markup is 42.9% and the margin is 30%.
How do I convert a target margin into a markup?
Divide the target margin by one minus the margin. To achieve a 30% margin, the required markup is 0.30 / 0.70, or about 42.9%.
Should I calculate margin before or after VAT?
If you are VAT registered, calculate margin on the VAT-exclusive price. The 16% VAT collected is not your income and should not be counted as part of revenue.