Profit margin calculator: margin, markup and selling price

The margin calculator has two modes. Enter every price before GST, for one unit or one pack, and use the same unit for cost and price.

For cost, use what the item cost you to get onto your shelf: the supplier's price plus freight and other charges, without the GST you claim back. The landed cost calculator works this out.

Margin and markup use the same profit but divide it by different numbers. Margin divides profit by the selling price, so it tells you how much of every rupee of sales you keep. Markup divides profit by the cost, so it tells you how much you added on top of what you paid.

When you make a profit, the selling price is higher than the cost, so markup is always the bigger number. An item bought at ₹60 and sold at ₹80 has a profit of ₹20, a markup of 33.3% and a margin of 25%. The gap matters when the plan is a 30% margin but the price is set by adding 30% to cost: that gives a margin of only 23.1%.

The markup each common margin needs:

A namkeen maker's wholesale price. A 400 g pack costs ₹60 to make and deliver and sells to shops for ₹80 before GST. Profit is ₹20, the margin is 20 ÷ 80 = 25% and the markup is 20 ÷ 60 = 33.3%. With a 5% GST rate entered, the shop pays ₹84.00.

A distributor pricing for a target margin. A carton of detergent costs ₹1,200 landed, and the distributor wants a 20% margin. The selling price is 1,200 ÷ (1 − 0.20) = ₹1,500, a markup of 25%. Adding 20% to cost would give ₹1,440 and a margin of only 16.7%, which is ₹60 less on every carton.

A clothing store's shelf price. A kurta costs ₹450 landed and the store wants a 40% margin. The selling price is 450 ÷ 0.60 = ₹750 before GST, a markup of 66.7%. At a 5% GST rate, the customer pays ₹787.50.

Margin is worked out before GST because, for a regular GST-registered business, GST is not your money. The GST you charge customers is paid to the government, and the GST you pay suppliers is usually claimed back as input tax credit. Neither is income or cost, so both are left out.

Mixing the two overstates your margin. Compare the ₹84 the shop pays for the namkeen pack, including GST, with its ₹60 cost, and the margin looks like 28.6% instead of 25%.

There are exceptions. A business under the composition scheme cannot claim input tax credit, so the GST it pays on purchases is part of its cost, and the law blocks the credit on some purchases. Ask your accountant how GST should be treated for your business.

These mistakes make a product look more profitable than it is.

A spreadsheet margin is only as good as the cost typed into it. Once you buy the same item at different prices, pay freight on some deliveries and sell at different prices to different customers, the real margin is in your purchase and sales records, not in a fixed column.

In managemate, margin and profit per unit update on each product as you type its cost and selling price. Each lot keeps a moving-average cost that includes freight and other charges spread from its purchase, and each sales order shows its cost and margin before GST, from the lots actually delivered, to people allowed to see costs. Purchase orders show a buying margin, landed cost against today's selling prices, and the dashboard charts profit and margin over time.