Profit Margin Calculator

Thirty percent margin, or forty-three percent markup

Revenue of ₹1,000 against a cost of ₹700 gives a profit of ₹300. Expressed as a margin that is 30%. Expressed as a markup it is 42.86%.

Same transaction, same profit, two very different numbers — and the confusion between them is responsible for a great deal of accidental underpricing in small businesses.

The two ratios

Margin = profit ÷ revenue × 100 = 300 ÷ 1,000 = 30%

Markup = profit ÷ cost × 100 = 300 ÷ 700 = 42.86%

Margin measures profit against the selling price; markup measures it against the cost price. Because the selling price is always larger than the cost for a profitable sale, markup is always the larger number, and the gap widens as profitability rises:

• 10% margin = 11.1% markup
• 25% margin = 33.3% markup
• 50% margin = 100% markup
• 75% margin = 300% markup

The practical failure is applying a target margin as if it were a markup. A retailer wanting a 40% margin who adds 40% to cost achieves only a 28.6% margin — a shortfall of over a quarter of the intended profit on every single sale.

Converting between them:

Markup = margin ÷ (1 − margin) Margin = markup ÷ (1 + markup)

Which one to use

Margin is the right measure for analysis and comparison. It is what appears in financial statements, what investors and lenders look at, and it is comparable across businesses regardless of their cost structure.

Markup is the right tool for pricing, because you start from a known cost and need a selling price. Just convert your target margin to the equivalent markup first.

The three margins on a real income statement

The single "profit margin" here is gross margin. A complete picture has three, and they answer different questions:

Gross margin = (revenue − cost of goods sold) ÷ revenue. Measures the profitability of the product itself, before any overhead.

Operating margin = operating profit ÷ revenue, after rent, salaries, marketing and administration. Measures whether the business model works.

Net margin = net profit ÷ revenue, after interest and tax. Measures what actually accrues to the owners.

A business can have an excellent gross margin and a negative net margin, which is the normal condition of a young company spending heavily on growth. Quoting gross margin as "the margin" without saying so is a common way of flattering a set of numbers.

Typical ranges

Margins vary enormously by sector, and comparing across them is meaningless:

• Grocery and FMCG retail — 2–5% net, on high volume
• Apparel retail — 40–60% gross, much lower net after rent and markdowns
• Restaurants — 60–70% gross on food, 3–9% net
• Software — 70–90% gross, since marginal cost is near zero
• Construction and contracting — 5–15% net

Reading the result

Ensure cost includes everything attributable to the sale — purchase price, freight inward, import duty, packaging, and payment-gateway fees where applicable. Omitting inbound freight is the most common understatement, and on imported goods it can be several percent.

Where GST applies, compute margin on the GST-exclusive figures on both sides. Mixing an inclusive selling price with an exclusive cost overstates margin by roughly the tax rate.

Common mistakes

Applying a target margin as a markup. A 40% markup gives only a 28.6% margin.

Comparing gross margin to a competitor's net. Always compare like with like.

Omitting freight and handling from cost. It silently inflates margin.

Mixing GST-inclusive and exclusive figures. Use one basis throughout.

Chasing margin at the expense of volume. Total profit is margin times units, and the highest margin is rarely the highest profit.