What is the Profit Margin?
Three margins tell three different stories. Gross margin shows whether your product is priced above what it costs to make. Operating margin shows whether the business runs efficiently. Net margin shows what actually remains after interest and tax.
A business can have a healthy gross margin and still lose money if operating costs are bloated — which is why all three matter.
Formula & worked example
Operating margin = (Gross profit − Opex) / Revenue × 100
Net margin = (Operating profit − interest & tax) / Revenue × 100
Worked example: ₹10,00,000 revenue with ₹5,50,000 COGS gives ₹4.5 lakh gross profit — a 45% gross margin. After ₹2.5 lakh of operating expenses, operating profit is ₹2 lakh (20%). After ₹60,000 of interest and tax, net profit is ₹1.4 lakh — a 14% net margin.
How to use this profit margin calculator
- Enter total revenue for the period.
- COGS is the direct cost of producing what you sold — materials and direct labour.
- Operating expenses are rent, salaries, marketing and admin.
- Add interest and tax to reach the net figure.
Smart tips
- Gross margin is the health check on pricing. If it is thin, no amount of cost-cutting elsewhere will save the business.
- Track margins as percentages over time, not rupee profits — percentages reveal problems earlier.
- Typical net margins: 2–5% for retail, 10–20% for manufacturing, 20–40% for software.
- A falling gross margin with rising revenue usually signals discounting or input cost inflation.
Frequently asked questions
What is a good profit margin?
It varies by industry. Net margins of 2–5% are normal in retail, 10–20% in manufacturing, and 20%+ in software and services.
What is the difference between gross and net margin?
Gross margin only subtracts direct production costs. Net margin subtracts everything, including operating expenses, interest and tax.
How do I improve profit margin?
Raise prices, reduce direct costs, cut low-margin products, or lower fixed overheads. Price increases usually have the fastest impact.
Is margin the same as markup?
No. Margin is profit as a percentage of the selling price; markup is profit as a percentage of cost. A 50% markup is a 33% margin.
Want the theory behind the numbers? Read our business guides on the Money Blog.
Written by Gurjeet Singh, Sharpen Solutions. Last reviewed 30 Sep 2026. How we check these numbers.