You want to price and discount medicines without losing money. Most of the money pharmacies lose on pricing is lost to one confusion: markup and margin are two different percentages of the same profit, and people mix them up. Add to that a discount that looks small but quietly eats half the profit of the item, and a margin that looks healthy on paper while expired stock eats it from the other side. This guide gives you the arithmetic, with worked examples you can check by hand, so that you can price an item, decide whether a discount is affordable, and see where the profit really goes. For how to cut waste from expiry and shortages, see Pharmacy stock and expiry management; here we stay with the calculation.
Two percentages for one profit
Take an item that costs you 80 and sells for 100. The profit is 100 − 80 = 20. Now divide that profit in two ways:
- Markup = profit ÷ cost × 100 = 20 ÷ 80 = 25%. It says how much you added on top of what you paid.
- Margin = profit ÷ selling price × 100 = 20 ÷ 100 = 20%. It says how much of each pound you take in stays with you as profit.
Same profit, two honest numbers, because each divides by a different base. Markup is always the larger of the two for the same sale. Rules of thumb like "add 25%" speak markup; accountants and your own profit-and-loss account speak margin. Before you compare your pharmacy with anyone else's figures, ask which of the two they mean.
You can see both for your own numbers with the pharmacy margin calculator: type a cost and a selling price and it shows the profit per unit, the markup and the margin side by side, then lets you try a discount.
The most common mistake: adding your target margin to the cost
Suppose you want a 25% margin and you add 25% to the cost of 80. The price is 100, and the margin is only 20%. You priced for 25% and earned 20%, and on a thin-margin item that gap is the whole difference between profit and loss.
To get a 25% margin the right way, divide the cost by (1 − margin):
Selling price = cost ÷ (1 − margin)
80 ÷ (1 − 0.25) = 80 ÷ 0.75 = 106.67. Check it: profit 26.67 ÷ 106.67 = 25%. The markup on cost is 26.67 ÷ 80 = 33.3%.
A second example: an item costs 120 and you want an 18% margin. Price = 120 ÷ 0.82 = 146.34. Profit 26.34, margin 26.34 ÷ 146.34 = 18.0%, markup 26.34 ÷ 120 = 21.95%.
Converting between them
The two conversions are:
- Markup = margin ÷ (1 − margin)
- Margin = markup ÷ (1 + markup)
Here is a table you can keep at the counter (rounded):
| Margin | Equivalent markup |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% (price is double the cost) |
The gap widens as margins rise: close at 10%, far apart at 40%.
A weighted margin, not an average of margins
Real pharmacies sell many items at different margins and volumes, so the margin of the whole basket is not the average of the item margins. Take two lines (illustrative numbers, not real medicine prices):
- Line A: cost 80, price 100, sells 100 units. Revenue 10,000, profit 2,000, margin 20%.
- Line B: cost 30, price 45, sells 50 units. Revenue 2,250, profit 750, margin 33.3%.
The simple average of 20% and 33.3% is 26.7%, and that is wrong. The total is profit 2,750 ÷ revenue 12,250 = 22.4%. The calculator does this weighting for you when you enter several lines; the rule to remember is to add up the profits and the revenues first and divide once.
What a discount really costs
A discount is taken from the profit, not from the margin percentage. Go back to the item that costs 80 and sells for 100, and give 10% off. The price becomes 90, the profit falls from 20 to 10, and the margin falls from 20% to 11.1%. You have given away half your profit on that sale for a "10%" discount.
To earn the original profit you must now sell more units. The formula is:
Extra volume needed = discount ÷ (margin − discount)
With a margin of 20% and a discount of 10%, that is 10 ÷ (20 − 10) = 100%. You must sell twice as many units. Check it with units: 100 units at a profit of 20 earn 2,000. At a profit of 10 you need 200 units to earn the same 2,000.
Here is the same item at a 20% margin across different discounts:
| Discount | Margin left | Extra volume needed |
|---|---|---|
| 2% | 18% | +11.1% |
| 5% | 15% | +33.3% |
| 8% | 12% | +66.7% |
| 10% | 10% | +100% |
| 15% | 5% | +300% |
| 20% | 0% | no volume recovers it |
The curve climbs steeply as the discount approaches the margin, and at a discount equal to the margin every sale earns nothing. At a 30% margin the same 10% discount needs 10 ÷ 20 = +50%, which is why high-margin items can afford a discount that low-margin items cannot. Move the discount slider on the calculator to watch the curve, and the margin after the discount, change.
Ask one realistic question before you give any discount: can I sell that many more? If you sell 100 units a month of an item, a 10% discount at a 20% margin means finding 100 more buyers every month, not a few extra.
The reverse: a discount you receive
A discount from your supplier works the other way and is worth the same arithmetic. If the cost of 80 drops 5% to 76 and your price stays at 100, the profit rises from 20 to 24, a margin of 24% and a markup of 31.6%. That is a 20% increase in profit from a 5% cheaper purchase, which is why negotiating cost and watching which supplier offers the better net price often matters more than chasing small price changes at the counter. Always use the real purchase cost after the supplier's discount in the calculator, as the margin is only as good as the cost behind it.
Waste is a negative margin: the expiry effect
An item with a profit of 20 per unit and a cost of 80 is wiped out by waste faster than most owners expect. One expired unit loses its cost of 80, and you must sell 80 ÷ 20 = 4 more units of the same item just to get back to where you were. So the margin you calculate at the counter overstates what you keep if stock expires. Keep expiry out of the margin with the routines in Pharmacy stock and expiry management, and read Choosing pharmacy software in Egypt for the reports that make it visible.
Regulated prices: what the calculator does not do
Many medicines in Egypt have official consumer prices set by the Egyptian Drug Authority (EDA). The authority's own procedures for herbal medicines, for example, describe companies applying for a price notification or a change in price, and refer to compulsory pricing. Press coverage in April 2024 described a compulsory pricing system introduced by a 2012 Ministry of Health decree, with prices fixed for several years and reviewed on request or on large exchange-rate movements, and noted that the authority was reviewing proposals for new rules. Rules like these change, so check the current position with the EDA before you rely on any statement, including this one.
What follows for pricing: for an item with an official price, your selling price is not yours to choose, so the levers left are the cost you pay, the mix you sell, waste, and any discount you offer that is permitted. Whether a particular discount is allowed on a particular medicine is a question for the EDA or your pharmacists' syndicate, not for this guide, and the calculator neither sets nor checks legal prices: it only does the arithmetic on the numbers you type.
A test to run before any discount
- What is the margin on this item after the supplier's discount, as a percentage of the selling price?
- What extra volume does the discount need (discount ÷ margin − discount)?
- Is that volume realistic against what I sell today?
- Is the discount permitted for this item?
- Does it apply to a fixed period, so I can measure it afterwards?
- Am I discounting something close to expiry on purpose? That is a different decision: selling near its date at a lower profit can beat writing it off.
The next step
Pick the five items that sell most and calculate for each its profit per unit, its margin, and the extra volume a 5% and a 10% discount would need. Use the pharmacy margin calculator for this: it takes a minute per item and shows the answer as a picture too. Then compare the result with your last month of sales. If you want to talk through your own figures or see how stock, dispensing and sales reports sit together in one system, Softwiro's MyClinic (Sehaty) tracks pharmacy stock item by item with an alert before a line runs out, and records dispensing against the prescription that authorised it; contact us for a demonstration.
This is general information for planning, not financial, legal or professional advice, and every number in the examples is illustrative.
Sources
- Markup vs. Margin: Difference, formulas & live converter — Zoho Inventory. The definitions of markup (profit ÷ cost) and margin (profit ÷ selling price), the two conversion formulas, and a worked example.
- Egyptian Drug Authority: procedures for requesting a price notification for herbal medicines (PDF) — EDA. Companies apply to the authority for a price notification or a price change, and the document refers to compulsory pricing.
- Drug authority mulls proposals for new price controls on pharma products — Enterprise, 4 April 2024. A compulsory pricing system from a 2012 Health Ministry decree, prices fixed for five years with repricing triggers, and proposals under review by the EDA. A press report: check the current rules with the EDA.
- Egyptian Drug Authority — the regulator's site, where official prices and current rules should be checked.