What is profit margin?
Profit margin tells you how much of every rupee of sales you actually keep as profit. If you sell an item for ₹10,000 that cost you ₹8,000, your gross profit is ₹2,000 and your gross margin is 20%. It is the single most-watched number in trading, manufacturing and services because it shows whether your pricing covers your costs and leaves room for overheads and tax.
Formula
- Gross Profit = Selling Price − Cost Price
- Gross Margin % = Gross Profit ÷ Selling Price × 100
- Markup % = Gross Profit ÷ Cost Price × 100
- Selling price for a target margin = Cost ÷ (1 − Margin %)
Worked example
A Sikar electronics dealer buys a mixer-grinder for ₹2,400 and pays ₹100 freight. Total cost is ₹2,500. He wants a 25% margin. Price = 2,500 ÷ (1 − 0.25) = ₹3,333.33 excluding GST. Profit per unit is ₹833.33, which is a 33.33% markup on cost. If he instead simply added 25% to cost he would charge ₹3,125 and his real margin would be only 20% — a classic pricing mistake this calculator prevents.
Margin vs markup — why it matters
Margin is measured on the selling price; markup is measured on the cost. A 50% markup equals only a 33.3% margin. Distributors usually talk in markup ("I add 10%"), while accountants and banks talk in margin ("gross margin is 18%"). Mixing the two leads to under-pricing. The tool shows both so you always know which figure you are quoting.
Who should use this tool
- Retailers and wholesalers fixing shelf prices for new stock
- Freelancers and agencies pricing a project after estimating hours and costs
- Manufacturers checking whether a bulk order at a discounted rate is still profitable
- Students of accountancy and commerce preparing for CA Foundation, B.Com or MBA exams
Tips for Indian businesses
Always compute margin on the GST-exclusive price. GST you collect is not your income — it is passed to the government. If you are a composition dealer, remember the 1% (traders) or 6% (services) tax comes out of your pocket and reduces your effective margin. Use the quantity field to see total profit for a consignment, and the sensitivity table to compare the selling price at 10% to 50% margins at a glance.
Frequently Asked Questions
What is a good profit margin for a small business in India?
It depends on the trade. Grocery and FMCG retail work on 5–15% gross margins with high volume; electronics 8–20%; apparel and furniture 40–60%; services and consulting 30–70%. Compare with your own category rather than a universal number.
What is the difference between gross margin and net margin?
Gross margin only deducts the direct cost of goods. Net margin also deducts rent, salaries, electricity, interest, depreciation and income tax. Net margin is always lower and is what finally reaches the owner.
How do I find the selling price if I know my cost and the margin I want?
Divide cost by (1 − margin). For ₹800 cost and 20% margin: 800 ÷ 0.80 = ₹1,000. Choose the "Find selling price" mode in the calculator and it does this for you.
Should GST be included when calculating margin?
No. Calculate margin on the taxable value (before GST). GST collected on sales is remitted to the government after adjusting input tax credit, so it is neither revenue nor profit.
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.