Profit Margin Calculator
Three margins from one set of figures, and the markup confusion that misprices things.
- Markup on cost — the same spread, other denominator
- 66.67%
- Margin that markup equals
- 40.00%
- To price for a 40% margin, this cost must sell at
- ₹10,00,000.00
- Net profit
- ₹1,50,000.00
- Cost of goods
- ₹6.00L
- Operating expenses
- ₹2.00L
- Interest and tax
- ₹50.00K
- Net profit
- ₹1.50L
Margin is on PRICE, markup is on COST, and confusing them is the most common pricing error there is. A 50% markup is a 33.3% margin; a 50% margin is a 100% markup. The practical consequence is that to hit a target margin you must divide the cost by (1 − margin), not multiply by (1 + margin) — multiplying gives you the markup and quietly underprices the thing. Gross margin measures the product, operating margin measures the business, and net margin measures what is left after financing and tax.
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Independent · No commissions · No fund-house data — how the numbers are computed
How it works
Three margins, each answering a different question. Gross margin measures the product — what is left after the direct cost of making or buying it. Operating margin measures the business — what survives the cost of running it. Net margin measures what is actually yours, after financing and tax.
The calculator also converts between markup and margin, because confusing the two is the most common pricing error there is. Markup is calculated on cost; margin is calculated on price. A 50% markup is a 33.3% margin, and a 50% margin is a 100% markup.
The practical consequence catches people out constantly: to price for a target margin you must divide the cost by one minus the margin, not multiply by one plus it. Multiplying gives you the markup and quietly underprices the thing.
Gross margin = (revenue - cost of goods) / revenue. Markup = (price - cost) / cost. Price for a target margin = cost / (1 - margin).The conversions between them: margin = markup / (1 + markup), and markup = margin / (1 - margin). A 100% margin is impossible, since it would require an infinite markup.
Frequently asked questions
What is the difference between markup and margin?
The denominator. Markup expresses the profit as a percentage of what the item cost you; margin expresses it as a percentage of what you sold it for. Cost ₹100 sold at ₹150 is a 50% markup and a 33.3% margin — the same rupees, two different percentages. Suppliers usually quote markup and finance usually reports margin, which is where the confusion starts.
How do I price for a 40% margin?
Divide the cost by 0.6, giving ₹166.67 on a ₹100 cost — not ₹140, which is what multiplying by 1.4 produces and which is only a 28.6% margin. This single error is responsible for a great many businesses quietly running well below the margin they believe they are earning.
Which margin should I actually track?
All three, because a fall in each points somewhere different. A falling gross margin means your pricing or input costs have moved. A gross margin holding while operating margin falls means overheads are growing faster than sales. Both holding while net margin falls means financing or tax. Watching only the net figure tells you something is wrong without telling you where.