How to calculate profit margin (with formulas and examples)

The profit margin formula

Profit margin is the share of your selling price that you actually keep. The formula is simple:

Profit margin = (Selling price − Cost) ÷ Selling price × 100

If something costs you ₹500 and you sell it for ₹750, your profit is ₹250, and your margin is 33% — you keep one rupee in three from every sale.

The one rule that catches everyone: margin is calculated against the selling price, not the cost. This is where most people drift into markup territory without realising it.

Margin vs markup: the difference that costs money

Markup is profit calculated against cost instead of selling price:

Markup = (Selling price − Cost) ÷ Cost × 100

Same numbers, very different results. A ₹500 cost sold at ₹750 is a 50% markup but only a 33% margin.

It matters because the two are easy to confuse when you set prices. A 25% markup is not a 25% margin — it is a 20% margin. Every time you add a fixed percentage on top of cost, you are pricing in markup and quoting less margin than you think.

Use the Profit Margin Calculator and it gives you both numbers at once, so you never confuse them again.

What is a good profit margin?

There is no universal number, but a useful floor: most healthy small businesses run a 20–40% net margin. Services usually sit higher because there is little cost of goods; retail and products sit lower because the cost of the product eats the price.

Watch for the danger zone. If your margin is under 10%, your pricing or your costs need attention. You are doing the work and the business is barely keeping the difference.

The fastest way to improve margin

Raising prices beats cutting costs almost every time. A 10% price increase on a 25% margin business improves margin by roughly 8 points — because the entire increase falls to the bottom line while your costs stay flat.

Before you discount to win a client, remember that every discount comes straight out of margin. A 10% discount on a 25% margin business cuts the margin to about 17%. It is much harder to earn that back in volume than it is to hold the price.

For service businesses, price the whole project rather than the hour. A Project Quote Calculator that accounts for scope — pages, integrations, timeline — protects your margin better than an hourly rate ever will. The same instinct applies when you set your freelance floor rate: start from the income you need, not from what competitors charge.

Run the numbers before you set the price

Margin is a before-the-sale decision, not an after-the-sale surprise. Run the math before you quote, and again when you are tempted to discount. If you are pricing a new product, the profit margin calculator is the two-field check that takes ten seconds.

And when you are thinking about overall business health, pair the margin view with your startup runway — margin tells you if each sale is healthy, runway tells you how long the business lasts while you fix it.