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How to Calculate Profit Margin (Gross, Net) With Examples

Profit margin tells you how much money you keep from every ₹100 of sales. It is the quickest health check for any business, and it is easy to calculate. Try our profit margin calculator or follow the steps below.

Gross profit margin

Gross profit is sales minus the direct cost of what you sold (materials, goods, direct labour).

Gross margin % = (sales − cost of goods sold) ÷ sales × 100

Example: you sold goods worth ₹5,00,000 (excluding GST) that cost you ₹3,50,000. Gross profit is ₹1,50,000. Gross margin = 1,50,000 ÷ 5,00,000 × 100 = 30%.

Net profit margin

Net profit is what remains after all expenses: rent, salaries, electricity, marketing, interest and tax.

Net margin % = net profit ÷ sales × 100

If the same business spent ₹1,10,000 on other expenses, net profit is ₹40,000 and net margin is 40,000 ÷ 5,00,000 × 100 = 8%.

Sales figure: exclude GST

Always use sales without GST. If you sold at ₹11,800 including 18% GST, your sales are ₹10,000. The ₹1,800 belongs to the government. See how to calculate GST.

What is a good profit margin?

It depends on your industry. Trading and retail often run on thin margins, while services and software can have much higher ones. Compare your margin with your own past months and with businesses like yours instead of chasing one universal number.

How to improve your margin

  1. Raise prices carefully. Even a small price increase can improve profit a lot. Use the percentage increase formula.
  2. Cut the cost of goods. Negotiate with suppliers, buy in bulk and reduce wastage.
  3. Control discounts. A 10% discount on a 20% margin item wipes out half your profit. See how to calculate discounts.
  4. Sell more of your high-margin items and mention them first on your quotations.
  5. Chase payments on time. Late payments hurt cash flow even if margin looks fine. Use our payment reminder samples.

FAQs

Is profit margin the same as markup?

No. Margin is profit as a percentage of the selling price; markup is profit as a percentage of cost. Read markup vs profit margin.

Can margin be negative?

Yes. If costs are higher than sales you make a loss and the margin is negative.