Gross margin is the first test of a price: after paying for the product itself — purchase cost or materials and direct labour — what percentage of the selling price is left to cover rent, salaries, marketing and profit? A product with a 20% gross margin cannot support a 25% marketplace commission; a service with a 70% gross margin can absorb a slow month. This calculator computes gross margin, gross profit and markup from cost and price, runs the reverse (the price needed for a target margin), and shows the effect of a discount or a cost increase.
Definitions
- Gross profit = Revenue − Cost of goods sold (COGS).
- Gross margin = Gross profit ÷ Revenue × 100.
- Markup = Gross profit ÷ COGS × 100.
Buy at ₹640, sell at ₹1,000 (excluding GST): gross profit ₹360, gross margin 36%, markup 56.25%. To hit a 45% margin, price = 640 ÷ (1 − 0.45) = ₹1,163.64. Margin and markup are often confused; the profit margin calculator shows both alongside net margin and break-even.
What goes into COGS
| Include | Exclude |
|---|---|
| Purchase price of goods, net of creditable GST | Rent, salaries of non-production staff, marketing |
| Inward freight, loading, customs duty | Depreciation on office assets |
| Raw materials, packaging that ships with the product | Interest, taxes |
| Direct labour in manufacturing or service delivery | Payment gateway fees (variable, but usually shown below gross) |
| Job-work charges, wastage | Warranty reserves (some businesses include them) |
For services, COGS is the direct cost of delivering — a designer's time on the project, a courier's fuel and driver — while owner salary and office costs sit below the line.
How to use the calculator
- Enter cost per unit (or total COGS) and selling price (or total revenue), excluding GST.
- Read gross profit, gross margin and markup.
- Use target margin mode to find the price for a margin you want, or the maximum cost you can pay at a given price.
- Apply a discount or a cost increase to see the new margin instantly — helpful before agreeing to a marketplace promotion.
- Feed the margin into the contribution margin and net profit margin calculators for the full picture.
Benchmarks (India, indicative)
- Grocery and FMCG retail: 8–18%
- Electronics retail: 6–15%
- Apparel and footwear: 40–60%
- Restaurants and cafés (food cost 30–35%): 65–70%
- Handmade and D2C brands: 50–70%
- Pharmacies: 15–25%
- Professional services: 50–80%
A margin below the category norm usually points to buying badly or pricing on fear; above it, to a differentiated product or a small base of loyal customers.
Protecting the margin
- Buy in the right pack size and negotiate cash discounts; the purchase order tool records terms.
- Watch input GST: a supplier who cannot pass ITC (composition dealer) is effectively 5–18% dearer.
- Price after freight: a ₹40 delivery on a ₹600 item is 6.7 points of margin — check volumetric weight surcharges before quoting free shipping.
- Discount from margin, not from habit: the discount calculator shows the margin after an offer.
- Reprice on cost changes quickly; a 5% input increase on a 30% margin product costs a sixth of your profit if unpassed.
The marketplace fee stack — commission, closing fee, shipping, returns — and the formula that protects margin are worked through in Pricing for Amazon, Flipkart and Meesho.
Related tools
- Profit margin & break-even — gross, net and units to break even.
- Contribution margin — after variable costs.
- Net profit margin — the bottom line.
- Discount calculator — margin after offers.
- Seller pricing workflow — margin after marketplace fees.