Profit Margin Calculator
Gross, operating and net margin in one view
- Cost of goods sold₹30.00 L60%
- Operating expenses₹12.00 L24%
- Tax₹2.00 L4.0%
- Net profit₹6.00 L12%
| Cost of goods sold | ₹30.00 L | 60.0% |
| Operating expenses | ₹12.00 L | 24.0% |
| Tax | ₹2.00 L | 4.0% |
| Net profit | ₹6.00 L | 12.0% |
Profit and loss summary
| Particulars | Amount | % of revenue |
|---|---|---|
| Revenue | ₹50,00,000 | 100.00% |
| Less: cost of goods sold | ₹30,00,000 | 60% |
| Gross profit | ₹20,00,000 | 40% |
| Less: operating expenses | ₹12,00,000 | 24% |
| Operating profit (EBIT) | ₹8,00,000 | 16% |
| Profit before tax | ₹8,00,000 | 16% |
| Less: tax | ₹2,00,000 | 4% |
| Net profit | ₹6,00,000 | 12% |
Understand the result
About the Profit Margin Calculator
What is profit margin?
Profit margin tells you how much of every rupee of sales you keep as profit. Gross margin looks at sales minus the direct cost of goods; operating margin also deducts running expenses such as salaries and rent; net margin deducts interest and tax too. Together they show where a business makes — or loses — its money.
This profit margin calculator works out gross, operating and net profit and margins from revenue and costs, plus the markup on cost and the cost ratio.
How this calculator works
Margin is always profit divided by REVENUE. Markup is profit divided by COST. They describe the same trade but produce different numbers, and confusing them is the most expensive arithmetic mistake in small business: a 50% markup is only a 33.3% margin, and a 100% markup is a 50% margin.
Three margins are worth tracking, and they answer different questions. Gross margin shows whether the product itself makes money after direct costs. Operating margin shows whether the business makes money after the cost of running it. Net margin shows what is actually left for the owners after interest and tax.
The gap between them is diagnostic. A healthy gross margin with a poor operating margin means the product works but overheads are too heavy. A weak gross margin means the problem is pricing or input costs, and no amount of cost-cutting elsewhere will fix it.
Margins are only meaningful against an industry benchmark. Groceries run on 2–3% net margins and survive on volume; software can exceed 25%. Comparing your margin to a different industry’s tells you nothing.
Formula
Gross profit = revenue − cost of goods sold Operating profit = gross profit − operating expenses Profit before tax = operating profit + other income − interest Net profit = profit before tax − tax Margin = profit ÷ revenue × 100 Markup = gross profit ÷ cost × 100
Worked example
- Revenue ₹50,00,000, COGS ₹30,00,000, operating expenses ₹12,00,000, tax at 25%.
- Gross profit ₹20,00,000 → 40% gross margin. Operating profit ₹8,00,000 → 16% operating margin.
- After 25% tax, net profit is ₹6,00,000 — a 12% net margin. The markup on cost, by contrast, is 66.7%.
Worked example
| Line | Amount | Margin |
|---|---|---|
| Revenue | ₹50,00,000 | 100% |
| Cost of goods sold | ₹30,00,000 | 60% |
| Gross profit | ₹20,00,000 | 40% |
| Operating expenses | ₹12,00,000 | 24% |
| Operating profit | ₹8,00,000 | 16% |
| Tax at 25% | ₹2,00,000 | 4% |
| Net profit | ₹6,00,000 | 12% |
A 40% gross margin shrinks to 12% by the bottom line. Improving any line — negotiating purchase costs, controlling overheads — lifts the net margin directly.
Assumptions & important notes
What this calculator assumes
- Revenue is net of returns, discounts and GST. GST is not your income and must be excluded.
- COGS includes only direct costs. Putting overheads here understates the gross margin and misleads pricing decisions.
- Depreciation is treated as an operating expense, which is standard but does mean operating profit is an accounting figure, not cash.
- The tax rate is applied to profit before tax as a flat percentage. Actual liability depends on disallowances, deductions and MAT.
Important notes
- Indicative net margins: FMCG 5–10%, retail 2–5%, restaurants 3–8%, manufacturing 5–12%, professional services 15–25%, software 15–30%.
- To convert markup to margin: margin = markup ÷ (100 + markup) × 100. A 50% markup becomes a 33.3% margin.
- Rising revenue with a falling gross margin usually means you are discounting to buy growth. It is worth knowing before it becomes a habit.
- Operating profit is often called EBIT. Add depreciation and amortisation back and you get EBITDA, which lenders use as a rough proxy for cash generation.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit as a share of the selling price; markup is profit as a share of cost. A product costing ₹100 sold at ₹150 carries a 50% markup but a 33.3% margin. Quoting one while thinking of the other is how businesses accidentally underprice.
Which margin should I focus on?
Gross margin for pricing and product decisions, operating margin for judging how efficiently the business runs, and net margin for what owners actually keep. If only one, watch gross margin — it is the earliest warning of trouble.
What counts as cost of goods sold?
Only costs that vary directly with production: raw materials, direct labour, freight inward, packaging. Rent, admin salaries, marketing and depreciation belong in operating expenses.
Is a high margin always better?
Not necessarily. A lower margin at much higher volume can produce more absolute profit, which is the entire business model of supermarkets. What matters is margin multiplied by volume, against the capital employed.
What is a good profit margin?
It varies enormously by industry: grocery retail often runs on low single-digit net margins, while software and consulting can earn far more. Compare with businesses in your own sector and track your own trend over time.
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