Every shopkeeper, online seller and freelancer needs to know one number about each product or service: the profit margin. It tells you how much of every rupee of sales you keep as profit. This guide explains how to calculate profit margin, with simple examples, and how to set prices that hit your target using our free Profit Margin Calculator.
The formula
Profit margin = (selling price − cost) ÷ selling price × 100
The margin is always a share of the selling price.
Example
You buy a phone case for Rs 600 and sell it for Rs 1,000.
- Profit: 1,000 − 600 = Rs 400
- Margin: 400 ÷ 1,000 × 100 = 40%
For every Rs 100 of sales, you keep Rs 40 before other expenses.
Setting a price for a target margin
If you want a 30% margin on a product that costs Rs 1,400:
Selling price = cost ÷ (1 − target margin)
1,400 ÷ 0.70 = Rs 2,000
Many people instead add 30% to cost (Rs 1,820), which gives only a 23% margin. That is the markup trap, explained in markup vs margin.
Gross margin vs net margin
| Type | What is subtracted | Shows |
|---|---|---|
| Gross margin | Cost of goods only | Product profitability |
| Operating margin | Plus rent, salaries, utilities | Business efficiency |
| Net margin | Plus tax and interest | Final profit |
A product can have a healthy 40% gross margin, but if rent and salaries take 35% of sales, the net margin is only 5%. The Profit Calculator adds fixed costs to show the full picture.
Quick margin table
| Cost | Price | Margin |
|---|---|---|
| Rs 700 | Rs 1,000 | 30% |
| Rs 500 | Rs 1,000 | 50% |
| Rs 1,200 | Rs 1,500 | 20% |
| Rs 80 | Rs 100 | 20% |
Include every cost
For an accurate margin, cost should include everything needed to sell one unit: purchase price, packaging, shipping to you, payment fees and marketplace commission. Leaving out a 10% platform fee can turn a planned 25% margin into 15%. Packaging costs are easy to estimate with the Packaging Cost Calculator.
Tax
If you charge sales tax, calculate margin on the price before tax, because the tax belongs to the government. Use the VAT Calculator to separate tax from a tax-inclusive price.
Frequently asked questions
What is the formula for profit margin?
(Selling price − cost) ÷ selling price × 100.
How do I price a product for a 30% margin?
Divide the cost by 0.70.
Is margin the same as markup?
No. Margin is profit as a share of price; markup is profit as a share of cost.
Should margin be calculated before or after sales tax?
Before sales tax, on the price you actually keep.