Profit margin is profit divided by revenue, times 100; ROI is the gain from an investment minus its cost, divided by its cost, times 100. Worked example: you sell a product at Rs 1,000 before GST and it costs Rs 600 to make and ship, so gross profit is Rs 400 and gross margin is 40%. That is not markup, which divides by cost: Rs 400 on Rs 600 is a 66.7% markup. Net margin takes every other expense out too (rent, salaries, ads, interest, tax), so it is always lower. For ROI: Rs 50,000 of ads that bring in Rs 80,000 of gross profit is a 60% ROI. In Excel, with price in B2 and cost in C2, margin is =(B2-C2)/B2 formatted as a percentage. Work on prices excluding GST, and on Amazon or Flipkart take off the commission and shipping fees before you call anything margin.
Sets out the three margins with their formulas (gross profit margin, operating profit margin and net profit margin, each as profit divided by revenue times 100), works an example and offers an Excel template.
A product seller's guide to gross, operating and net profit margin with the formula for each and ways to raise them, linked to Shopify's free profit margin calculator.
A free calculator: enter your cost and either a price or a target margin and it returns the other, which is the fastest way to see the difference between markup and margin.
This is the cleanest side-by-side we found: it defines both margins in plain language and then walks the exact same $600,000 sales figure through both formulas, so you see gross margin land at 46.7% and contribution margin at 73.3% on identical numbers. The punchline is the one founders miss: gross margin strips out all product costs (fixed and variable), while contribution margin isolates only the variable costs, which is what actually tells you whether one more sale earns money. Treat it as your starting point for the vocabulary, not the last word on your own P&L.
From
AccountingCoachby Harold Averkamp (AccountingCoach)5 min read
Gross margin subtracts cost of goods sold (fixed and variable product costs); contribution margin subtracts only the variable costs, so the two numbers can be far apart on the same sales.
Contribution margin is the number for break-even math and per-unit decisions, because it shows how much each sale contributes toward covering fixed costs and profit.
Same revenue, two very different percentages: healthy gross margin can hide a thin contribution margin once variable selling and delivery costs are counted in.
This is the cleanest plain-language separation of the two margins we found, and it walks through both formulas with actual dollar numbers instead of jargon. It is written for operators who are not finance people, which is exactly where most early founders sit. Treat it as your starting point for getting the definitions straight before you decide which number to steer by.
Gross margin subtracts the direct cost of producing the good or service, while contribution margin also subtracts the variable costs of each sale (sales commissions, shipping, transaction fees), so contribution margin is almost always the lower and more honest number.
The worked example makes it concrete: a product with 20 in net sales and 10 in variable costs has a 50 percent contribution margin, and the article shows the gross margin math on a separate case so you can see how the two diverge.
The higher your contribution margin, the more of each sale is left to cover fixed costs like payroll and rent, which is why founders watch it when pricing and deciding what to sell more of.
