Gross profit calculator

What gross profit tells you

Gross profit is the money that remains after a business pays the direct cost of the goods it has sold in a period. It covers nothing further: not rent, not salaries of office staff, not interest, not tax. Those sit lower down in the statement of profit and loss. A healthy gross profit lets a company absorb those later heads; a thin one leaves the operating line working against gravity.

Gross margin is gross profit divided by revenue, written as a percentage. Markup is gross profit divided by cost, also as a percentage. These two numbers are easy to confuse because they measure the same money, just against two different bases. This page prints both on every run, so the relationship is in view the moment you change an input.

Margin and markup are not the same number

A single example makes the point. Buy at a cost of ₹100 and price at a 25 per cent markup. The selling price is ₹100 x (1 + 0.25), which is ₹125. The gross profit on each sale is ₹25. The gross margin is ₹25 divided by ₹125, which is 20 per cent. So a 25 per cent markup leaves a 20 per cent margin, not a 25 per cent one.

The relationship is one-to-one, and the table on this page lists common pairs: a 20 per cent margin needs a 25 per cent markup; a 50 per cent margin needs a 100 per cent markup; a 60 per cent margin needs a 150 per cent markup. If a supplier quotes a target margin and a factory quotes a target markup, read both numbers through the same lens before signing the price.

The three modes and the formulas

The revenue and COGS mode is the backward reading: an invoice or a trial balance tells you what revenue was and what the goods cost, and the calculator derives the margin and the markup. Useful for an accountant closing a period, or a student checking the gross line on a published statement.

The cost and desired margin mode is the forward reading: a buyer knows the landed cost and wants a specific gross margin on price, and the calculator returns the selling price that reaches it. Selling price equals cost divided by one minus the margin, written as a decimal.

The cost and markup mode is the seller's quick quote: cost times one plus the markup. The margin that falls out of this is always a smaller number than the markup, which is why trying to hit a 40 per cent margin with a 40 per cent markup lands short.

Worked example you can check

A fabric retailer sells for ₹1,00,000 in a month and the cloth that went out the door cost ₹60,000. Gross profit is ₹40,000. The margin is ₹40,000 divided by ₹1,00,000, which is 40 per cent. The markup is ₹40,000 divided by ₹60,000, which is 66.67 per cent. Both describe the same ₹40,000; they are written against two different bases.

If the same retailer wants to hold a 40 per cent margin on a new line that costs ₹100 a unit, the selling price has to be ₹100 divided by 0.6, which is ₹166.67. A 40 per cent markup on that same ₹100 cost would be only ₹140, leaving a 28.57 per cent margin.

Where gross profit sits on the Indian profit and loss

Indian companies prepare the statement of profit and loss under Schedule III of the Companies Act 2013. Schedule III groups expenses by their nature: cost of materials consumed, purchases of stock in trade, changes in inventories of finished goods and work in progress, employee benefits, finance costs, depreciation and amortisation, and other expenses. It does not carry a line called gross profit by name.

So for a manufacturer, an analyst typically works out gross profit as revenue from operations minus cost of materials consumed, plus-or-minus the change in inventories, and sometimes less the manufacturing share of employee benefits and other expenses. For a pure trader the derivation is cleaner: revenue minus purchases of stock in trade plus or minus inventory change. Whichever layout is used, the gross line sits above operating and finance costs, and it is one of the first numbers read when a reader wants to understand pricing power.

What this calculator leaves out

• Operating expenses: rent, salaries of general staff, marketing, administrative costs. For those, use the business expenditure calculator alongside this one.
• Depreciation and amortisation. The gross margin is read before D and A, and the page below the gross line is where those appear; see the EBITDA calculator for that layer.
• Finance costs and tax. These never affect the gross line.
• Trade discounts and GST on the invoice. A discount shown on the invoice reduces revenue, and GST is a tax, not revenue; use the discount calculator where those are being modelled.
• Sales commission paid on turnover. That sits in other operating expenses; see the commission calculator.

Who this calculator is meant to help

A commerce student uses it to check a textbook sum: punch in revenue and cost, read gross profit and the two percentages, then verify against the problem's answer. An accountant preparing a sales quotation uses it the other way: enter the landed cost and the margin the firm wants to hold, and the selling price falls out. A business owner opening a new line uses the markup mode to translate a supplier-side rate into a price card. An investor reading a listed company's statement uses the revenue-and-COGS mode to check what the filing already prints, so the gross margin can be compared with the same company a year ago or with another company in the same industry.

Frequently asked questions

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