The percentage of selling price retained as profit after deducting cost
Margin, or profit margin, is the difference between the selling price and the cost price of a product, expressed as a percentage of the selling price. It tells you what portion of every rupee earned from a sale is actual profit. Margin is different from markup — while margin is calculated as a percentage of the selling price, markup is calculated as a percentage of the cost price. For example, if you buy an item for Rs. 80 and sell it for Rs. 100, your margin is 20% (Rs. 20 out of Rs. 100) but your markup is 25% (Rs. 20 out of Rs. 80). Understanding this distinction is critical for Indian business owners when setting prices, negotiating with suppliers, and analysing profitability. Gross margin considers only the direct cost of goods, while net margin accounts for all operating expenses like rent, salaries, and utilities. Tracking margin at the item level helps you identify which products contribute most to your bottom line and which may need price adjustments or should be discontinued. Healthy margins vary by industry — FMCG retail typically operates on 5-15% margins, while specialty goods may command 30-50%.
You run an electronics accessories shop in Hyderabad. You purchase phone covers at Rs. 150 each from a wholesaler and sell them at Rs. 250 each. Your profit per unit = Rs. 100. Margin = (Rs. 100 / Rs. 250) x 100 = 40%. Markup = (Rs. 100 / Rs. 150) x 100 = 66.7%. If you sell 200 covers in a month, your gross profit from this product alone is Rs. 20,000. Knowing your margin helps you decide whether a 10% discount (selling at Rs. 225) is still profitable — at Rs. 225, your margin drops to 33.3%, still healthy for accessories.
Margin % = ((Selling Price - Cost Price) / Selling Price) × 100Example: If you buy a product for ₹600 and sell it for ₹1,000, Margin % = ((₹1,000 - ₹600) / ₹1,000) × 100 = 40%. This means 40 paise out of every rupee earned is profit.
Margin is profit as a percentage of the selling price, while markup is profit as a percentage of the cost price. If cost is ₹80 and selling price is ₹100, margin is 20% (₹20/₹100) and markup is 25% (₹20/₹80). Margin is always lower than markup for the same transaction. Indian wholesalers often talk in terms of markup, while retailers and analysts prefer margin.
It varies by industry. Grocery and FMCG retail typically has 5-15% margins, clothing and apparel 30-50%, electronics 5-10%, and jewellery 10-25%. What matters more is your net margin after accounting for rent, salaries, and other overheads. A business with 40% gross margin but high expenses may earn less than one with 15% gross margin and low overheads.
Always calculate margin on the actual selling price, not MRP. If you sell a product below MRP (which is common), your margin should be based on the price the customer actually pays. Using MRP would overstate your margin and give you an incorrect picture of profitability.
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