Profit Margin Calculator

Margin, markup and pricing for a target margin

Margin is profit as a share of the selling price, while markup is profit as a share of cost. An item that costs ₹600 and sells for ₹800 has a profit of ₹200, a margin of 200 ÷ 800 = 25% and a markup of 200 ÷ 600 ≈ 33.3%.

To price for a target margin, divide the cost by one minus the margin. For a 40% margin on a ₹600 cost, the price is 600 ÷ (1 − 0.40) = ₹1,000. Adding 40% to the cost would give only ₹840, which is a margin of about 28.6%. Remember that gross margin ignores overheads such as rent and salaries, so net margin is always lower.

Margin vs markup

Profit margin measures profit as a share of the selling price: margin = (price − cost) ÷ price × 100. Markup measures profit as a share of cost: markup = (price − cost) ÷ cost × 100. The same sale always has a lower margin than markup, and mixing them up is one of the most common pricing mistakes in small businesses.

Gross margin uses only the direct cost of the product. Net margin subtracts every expense — rent, salaries, marketing and tax — and is always lower.

Worked example

A product costs 600 to make and sells for 1,000. Profit is 400, so margin is 400 ÷ 1,000 = 40 percent and markup is 400 ÷ 600 = 66.7 percent. To get a 40 percent margin on a product costing 750, the price must be 750 ÷ (1 − 0.40) = 1,250.

Using margin to set prices

Work out the margin you need to cover overheads and still make a profit, then price from cost using price = cost ÷ (1 − margin). Discounts eat into margin fast: a 10 percent discount on a 40 percent margin product cuts profit per unit by a quarter.