Pricing & profit
How to calculate profit margin
Profit margin measures how much of every rupee of revenue you actually keep. Subtract cost from selling price, divide by the selling price, and multiply by 100.
The important discipline is what you put into each side: costs must include everything you spent to deliver, and both figures must exclude GST.
The formula
Profit = Selling price − Cost price
Profit margin % = Profit ÷ Selling price × 100
Example. You buy a product for ₹800 landed and sell it for ₹1,000 excluding GST. Profit is ₹200 and margin is 200 ÷ 1,000 × 100 = 20%. The margin calculator shows both figures instantly.
What belongs in cost price
Understated cost is the usual reason a "profitable" product turns out not to be. Include everything that varies with the sale:
- Purchase price from the supplier, net of trade discounts.
- Inward freight, loading and transport to your godown or shop.
- Packing material and, for online sales, shipping and return costs.
- Payment gateway or marketplace commission on the order.
- For services, the delivery hours costed at their real hourly rate.
GST does not belong here if you claim input credit on it: it is not a cost you bear.
Gross margin vs net margin
| Line | Amount | Margin |
|---|---|---|
| Revenue (excl. GST) | ₹10,00,000 | — |
| Cost of goods sold | ₹7,00,000 | — |
| Gross profit | ₹3,00,000 | 30% |
| Overheads (rent, salaries, other) | ₹2,10,000 | — |
| Net profit | ₹90,000 | 9% |
Gross margin tells you whether your pricing works. Net margin tells you whether the business works. A healthy gross margin can still produce a loss if overheads are too high for your volume: check that with the break-even calculator.
Common margin mistakes
- Dividing profit by cost instead of selling price: that is markup, not margin. See markup vs margin.
- Using GST-inclusive revenue, which overstates margin.
- Discounting on the shop floor without a floor margin, so deals go below cost.
- Averaging margin across the whole catalogue and missing loss-making lines. Check individual products with the profit calculator.
Pricing a service rather than a product? See how to set your freelance rate for converting a target margin into an hourly, daily or project price.