Profit Margin Calculator - Calculate Margin & Markup

Gross margin is calculated using only the direct cost of goods (COGS) — it shows profitability before operating expenses. Net margin accounts for ALL expenses including rent, salaries, marketing, taxes, and interest. For example, a business with ₹10 lakh revenue, ₹4 lakh COGS, and ₹3 lakh operating expenses has 60% gross margin but only 30% net margin. Net margin is the true bottom-line profitability.

Good profit margins vary significantly by retail segment in India. Grocery/FMCG retail typically operates at 2-8% net margin, clothing and fashion at 10-20%, electronics at 5-12%, jewellery at 15-25%, and restaurants at 8-15%. E-commerce businesses often have lower margins (3-10%) due to delivery and discount costs. A gross margin above 40% is generally considered healthy for most retail businesses.

Margin is profit expressed as a percentage of the selling price, while markup is profit expressed as a percentage of the cost price. They always differ for the same transaction. For example, buying at ₹100 and selling at ₹150 gives a 33.3% margin (50/150) but a 50% markup (50/100). Margin can never exceed 100%, but markup can be any percentage. Retailers typically think in markup, while financial analysts prefer margin.

Use the formula: Selling Price = Cost Price / (1 - Desired Margin/100). For example, if your cost is ₹500 and you want a 40% margin: Selling Price = 500 / (1 - 0.40) = 500 / 0.60 = ₹833. This ensures your profit (₹333) is exactly 40% of the selling price. A common mistake is adding 40% to cost (₹700), which only gives a 28.6% margin.

This commonly happens due to: (1) offering higher discounts to drive volume, (2) rising input/raw material costs not passed to customers, (3) increased competition forcing price reductions, (4) higher operational costs (rent, salaries, logistics) eating into margins, or (5) product mix shifting toward lower-margin items. Track margin per product category to identify the root cause.