Profit Margin Calculator
Gross profit and margin from revenue and cost.
Your numbers
Gross margin
60%
Gross profit
₹6.00 L
Revenue
₹10.00 L
Break-even ROAS
1.7×
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Definition
Profit margin is the share of revenue you keep as profit. Gross margin is revenue minus cost of goods; net margin is what survives after every expense. Marketing decisions depend on gross margin, because that is the pool your acquisition spend comes out of.
The formula
Gross margin % = (Revenue − Cost of goods) ÷ Revenue × 100
For marketing purposes use contribution margin — after cost of goods, shipping, payment fees and expected returns. That is the number that sets your break-even ROAS and your maximum acquisition cost.
A worked example
Why the marketing margin is lower than the accounting one
- 1Average order value: ₹2,400. Cost of goods: ₹1,080, giving a 55% product margin.
- 2Shipping and packaging: ₹140. Payment gateway at 2%: ₹48.
- 3Returns run at 7% of revenue, costing about ₹168 per order on average.
- 4Contribution: ₹964 on ₹2,400.
Contribution margin is 40%, not 55%. Break-even ROAS is therefore 2.5x, not 1.8x — and a brand targeting 2x here would be losing money on every campaign while believing it was profitable.
How to move the number
Reduce returns before reducing cost of goods
In D2C, returns are usually the largest and least-managed margin leak. Better sizing information, honest photography and clear expectations often move margin more than renegotiating with a supplier.
Raise average order value
Fixed per-order costs — shipping, payment fees, packing — spread across a larger basket, so margin rises without any price increase.
Price on value, not on cost-plus
A modest price increase flows almost entirely to margin. In services especially, cost-plus pricing systematically undercharges for the outcome delivered.
Where people get this wrong
- Using product margin for marketing decisions and omitting shipping, fees and returns.
- Confusing markup with margin — a 50% markup is a 33% margin, and the difference decides whether campaigns are profitable.
- Applying one blended margin across a catalogue where products differ widely, which misprices every campaign.
- Treating margin as fixed rather than as the most controllable input to whether growth is affordable.
Profit Margin Calculator — questions we get
What is the difference between margin and markup?
Markup is profit as a percentage of cost; margin is profit as a percentage of the selling price. A ₹100 item sold at ₹150 carries a 50% markup and a 33% margin. Confusing them consistently overstates profitability.
Which margin should I use for ROAS targets?
Contribution margin — after cost of goods, shipping, payment fees and returns. Anything more generous produces a break-even ROAS that is too low, which is the most expensive arithmetic error in performance marketing.
Is a good margin different by industry?
Enormously. Software routinely runs at 80%, retail at 20%. That is why margin, not category, should drive your acquisition-cost ceiling — a low-margin business simply cannot pay what a high-margin one can.
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