Profit Margin Calculator

Profit Margin = (Profit ÷ Selling Price) × 100. Markup = (Profit ÷ Cost Price) × 100. Example: Buy at ₹1,000, Sell at ₹1,500. Profit = ₹500. Margin = (₹500 / ₹1,500) × 100 = 33.33%. Markup = (₹500 / ₹1,000) × 100 = 50%. KEY DIFFERENCE: Margin is profit as % of REVENUE (what you keep from each sale). Markup is profit as % of COST (how much you added to cost). Margin ALWAYS lower than Markup. 50% markup = 33% margin. 100% markup (double the cost) = 50% margin (NOT 100% margin). CRITICAL for pricing: Set Markup (easier, cost-based). Track Margin (shows true profitability vs competitors).

Retail/E-commerce: 20-30% gross margin (clothing 40-50%, electronics 5-15%). Restaurants: 60-70% food margin (after ingredient costs), 10-15% net margin (after rent, staff). SaaS/Software: 70-90% gross margin (low delivery cost), 20-30% net margin. Manufacturing: 25-40% gross margin, 10-20% net. Consulting/Services: 50-70% gross margin (labor-based). Grocery Stores: 5-10% net margin (high volume, slim margins). Example: Sell ₹1L product. Software: ₹90k profit (90% margin). Grocery: ₹5k profit (5% margin). CRITICAL: Compare margins WITHIN industry, not across. 5% in grocery = excellent. 5% in SaaS = business failing. Net Margin under 10% = Vulnerable (one bad quarter = losses).

Formula: Selling Price = Cost Price ÷ (1 - Desired Margin %). Example: Cost ₹1,000, Want 40% margin. Selling Price = ₹1,000 ÷ (1 - 0.4) = ₹1,000 ÷ 0.6 = ₹1,667. Check: Profit = ₹1,667 - ₹1,000 = ₹667. Margin = (₹667 / ₹1,667) × 100 = 40%. Common mistake: Adding 40% to cost (₹1,000 + 40% = ₹1,400) gives 28.6% margin, NOT 40%. That's MARKUP, not MARGIN. Quick Reference: 25% margin → Divide cost by 0.75. 33% margin → Divide by 0.67. 50% margin → Divide by 0.5 (double the cost). 60% margin → Divide by 0.4 (2.5x cost).

Gross Profit Margin = (Revenue - Cost of Goods Sold) ÷ Revenue. Net Profit Margin = (Revenue - ALL Expenses) ÷ Revenue. Example: Sell product ₹10L revenue, COGS ₹6L, Operating Expenses (rent, salaries, marketing) ₹3L. Gross Profit = ₹10L - ₹6L = ₹4L → Gross Margin = 40%. Net Profit = ₹10L - ₹6L - ₹3L = ₹1L → Net Margin = 10%. Why track both: Gross Margin shows PRODUCT profitability (pricing power, production efficiency). Net Margin shows BUSINESS profitability (after all overhead). High gross (40%) + Low net (5%) = Overhead problem (cut rent, staff, marketing). Low gross (15%) + Low net (2%) = Product pricing problem (increase price OR reduce COGS).

Discount = direct margin killer. Example: Product costs ₹1,000, Sell at ₹2,000 (50% margin). Give 20% discount → Sell at ₹1,600. New Profit = ₹600. New Margin = (₹600 / ₹1,600) = 37.5% (NOT 30%). Margin drops 12.5 percentage points. Volume needed to compensate: Original: 100 units × ₹1,000 profit = ₹1L. After discount: Need 167 units × ₹600 profit = ₹1L (67% more sales to maintain profit). CRITICAL: 20% discount requires 67% more volume. 30% discount requires 100%+ more volume (DOUBLE sales). Most businesses LOSE money on discounts (volume doesn't increase enough). Use discounts ONLY for: (1) Clearing old inventory, (2) Acquiring customers (LTV greater than discount loss), (3) Competing with large players (temporary).

Operating Leverage = Fixed Costs ÷ Total Costs. High fixed costs = High leverage = Margins improve dramatically with scale. Example: Manufacturing (₹10L fixed, ₹500 variable per unit). Sell 1,000 units at ₹1,500 → Total Cost = ₹10L + ₹5L = ₹15L. Revenue ₹15L → 0% margin. Sell 5,000 units → Total Cost = ₹10L + ₹25L = ₹35L. Revenue ₹75L → Margin = (₹40L / ₹75L) = 53%. 5x volume → Margin from 0% to 53% (operating leverage). Software/SaaS: Extreme leverage (₹50L to build product, ₹10 delivery cost per customer). 1,000 customers → ₹55L cost, ₹10L revenue (loss). 100,000 customers → ₹60L cost, ₹1000L revenue (94% margin). Service businesses: Low leverage (cost scales with customers—more customers = more staff needed).

Depends on positioning: (1) Volume Play (low margin, high volume): Grocery stores (5% margin, massive scale). Requires: (a) Operational efficiency, (b) Large market, (c) Deep pockets for initial losses. (2) Premium Play (high margin, low volume): Luxury goods, specialized services (60%+ margins). Requires: (a) Brand differentiation, (b) Unique value, (c) Niche market. CRITICAL: Middle is DEATH ZONE (20% margin, low volume = can't scale, can't differentiate). Example: E-commerce → Amazon (15% margin, billion customers) vs Boutique brands (60% margin, 10,000 customers). Both work. Middle player (25% margin, trying to compete with Amazon on price) = Dead. Pick lane: Volume (optimize costs, thin margins, aggressive growth) OR Premium (maintain margins, invest in brand, target niche).

5 Strategies: (1) Reduce COGS: Negotiate bulk discounts (₹1,000 → ₹800 = +10% margin), Source cheaper suppliers, Automate production. (2) Reduce Operating Expenses: Cut rent (remote work), Automate marketing (reduce agency fees), Outsource non-core (accounting, IT support). (3) Product Mix Optimization: Product A: 20% margin, Product B: 50% margin. Push B more (upsell, bundle, marketing). (4) Upselling/Cross-selling: Base product 30% margin, Add-ons 70% margin. Bundle increases average margin. (5) Process Efficiency: Reduce waste (manufacturing), Faster delivery (lower inventory costs), Better cash conversion (reduce financing costs). Example: ₹100L revenue, ₹80L costs (20% margin). Cut COGS by ₹5L (better sourcing) + Cut OpEx by ₹3L → New cost ₹72L → Margin 28% (8-point improvement WITHOUT price increase).

Total Profit = (Revenue - Costs) = Margin% × Revenue × Volume. Two paths to same profit: (1) High Margin, Low Volume: Sell 1,000 units at ₹2,000, 50% margin = ₹1,000 profit per unit = ₹10L total. (2) Low Margin, High Volume: Sell 10,000 units at ₹1,100, 10% margin = ₹110 profit per unit = ₹11L total (MORE profit). Margin-Volume Trade-off: Higher price → Higher margin BUT lower volume (demand falls). Lower price → Lower margin BUT higher volume (demand rises). OPTIMAL POINT: Price Elasticity dependent. Inelastic goods (medicine, fuel) → High margin works (people buy regardless). Elastic goods (clothing, electronics) → Volume play wins (people sensitive to price). TEST: Start high margin, gradually reduce price, track total profit (not margin%). Maximum total profit = optimal price point.