Margin Calculator

How to Calculate Profit Margin

Understanding profit margin is essential for evaluating the profitability of a business. Follow these steps:

Step 1: Determine Your Cost of Goods Sold (COGS)

The cost of goods sold (COGS) includes the expenses directly related to producing or purchasing the product.

Example: ₨30

Step 2: Determine Your Revenue

Revenue is the amount you sell the product for.

Example: ₨50

Step 3: Calculate Gross Profit

Gross profit is the difference between revenue and COGS.

Example: 50 - 30 = 20

Step 4: Calculate Profit Margin

To find the profit margin, divide gross profit by revenue and express it as a percentage.

Example: (20 / 50) × 100 = 40%

Thus, the profit margin is 40%.

Gross Margin Formula

Since Profit = Revenue - Costs, an alternative formula is:

Additional Useful Formulas

Revenue Calculation:
Revenue = (Profit / Margin) × 100

Cost Calculation:
Costs = Revenue - ((Margin × Revenue) / 100)

Understanding Profit Margin Terminology

The terms margin, profit margin, gross margin, and gross profit margin are often used interchangeably. Typically, COGS does not include additional expenses such as marketing, transportation, or administrative costs.

Margin vs. Markup

While profit margin and markup are related, they differ:

• Profit Margin: The ratio of profit to revenue (sale price).
• Markup: The ratio of profit to COGS (purchase price).

Example: If an item costs ₨30 and is sold for ₨50, the profit margin is 40%, but the markup is 66.67%.

Frequently Asked Questions (FAQs)

For more details on topics such as gross vs. net profit margin, calculating specific margins (10%, 20%, or 30%), and understanding margin versus profit, please refer to our comprehensive help documentation.