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Free HR tools · Gross margin calculator

Gross Margin Calculator

Enter the figures you have. The answer updates as you type.

What do you want to work out?

What the client is billed, excluding GST.

What it costs you to deliver the work. Salaries, contractor pay and anything else that only happens because the job does.

What is gross margin

Gross margin is what is left of your revenue once you take off the cost of delivering the work, written as a percentage of the revenue.

Bill a client ₹10,00,000 for a project that costs ₹6,00,000 to staff and deliver, and ₹4,00,000 is left. That is a 40% gross margin. It is the money that has to cover everything else the business does: the office, the software, the people who are not on the job, and whatever is meant to be profit at the end.

It is a gross figure, not a net one. Gross margin stops at the cost of delivery and asks nothing about overheads, so a business with a healthy gross margin can still lose money. What it tells you is whether the work itself is priced to pay for anything at all, which is why it is the first number to look at and never the last.

The working

How Gross Margin Is Worked Out

Three steps, one subtraction and one division. The only thing to get right is what you divide by, and that is where margin and markup part company.

  1. 01

    Take the cost off the revenue

    What the client pays, less what delivering it costs you. That is gross profit in rupees, and it is the figure the rest follows from.

  2. 02

    Divide by the revenue

    By the revenue, not the cost. Dividing by the cost gives you markup instead, which is a larger number and a different question.

  3. 03

    Multiply by a hundred

    That is the percentage. Gross margin can never reach 100%, because the cost would have to be nothing.

The Formula, Both Ways Round

The calculator above runs whichever of these you need. They are the same relationship rearranged, so an answer from one checks against the other.

  • Gross margin

    (Revenue − Cost) ÷ Revenue × 100

    Use this when you know what you charged and what it cost, and you want to know how the job did.

  • The price for a target margin

    Cost ÷ (1 − Margin % ÷ 100)

    Use this when you are quoting. Dividing by one minus the margin is the step people get wrong; multiplying the cost by the margin gives a price that misses the target every time.

The one to get right

Gross Margin Is Not the Same as Markup

Both come out of the same two numbers. Margin divides by the revenue, markup divides by the cost, and markup is always the bigger figure. Quoting one when you meant the other is how a business prices itself into a loss it cannot see.

Markup, divided by the cost

  • Cost ₹6,00,000, price ₹10,00,000, markup is 66.7%
  • Answers "how much did I add on top of cost?"
  • Has no ceiling: a 300% markup is an ordinary thing to say
  • What suppliers and sales teams usually quote
  • Add 40% to your cost and you have a 28.6% margin, not 40%

Margin, divided by the revenue

  • Cost ₹6,00,000, price ₹10,00,000, margin is 40%
  • Answers "how much of what I billed did I keep?"
  • Can never reach 100%, because cost cannot be nothing
  • What accounts, boards and investors mean by margin
  • To get a 40% margin, divide the cost by 0.6 rather than adding 40%

Six Things That Move a Gross Margin

There is no single figure that counts as healthy, because it depends entirely on what you sell and what delivering it costs. These are the levers that actually move the number.

The gap between bill and pay

In staffing this is the whole of it: what the client is billed for an hour against what the person doing the work is paid for it. Everything else is a rounding error beside it.

Utilisation

Paid time that is not billed is cost with no revenue against it. A bench, a gap between contracts and time written off all land in the same place.

Rework and overrun

Hours spent doing a job twice cost the same as hours spent doing it once, and the client pays for it once. Fixed-price work is where this shows up first.

Who is on the job

The same work delivered by a more expensive team is the same revenue against a higher cost. Staffing a job above the level it needs is a quiet way to lose a margin.

What you count as cost of delivery

Move a salary in or out of that line and the margin moves with it. Pick a rule, write it down, and compare like with like from then on.

Discounting

A discount comes off the revenue and none of it comes off the cost, so it hits the margin harder than it looks. Ten per cent off a 40% margin job leaves about 33%.

Frequently
Asked Questions

What people ask when they are pricing work or reading a P&L.

Still have questions?

Talk to the team and we will walk you through it.

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Take the cost of delivering the work off the revenue, divide what is left by the revenue, and multiply by 100. On ₹10,00,000 of revenue against ₹6,00,000 of cost, the gross profit is ₹4,00,000, divided by ₹10,00,000 gives 0.40, and that is a 40% gross margin. Divide by the revenue, not by the cost; dividing by the cost gives you markup.

They use the same two numbers and divide by different ones. Margin is gross profit divided by revenue; markup is gross profit divided by cost. On a ₹6,00,000 cost sold at ₹10,00,000, the margin is 40% and the markup is 66.7%. Markup is always the larger of the two and has no upper limit, while margin can never reach 100%. The calculator above prints both so you never have to guess which one somebody meant.

Divide the cost by one minus the margin as a decimal. For a 40% margin on a ₹6,00,000 cost, that is ₹6,00,000 ÷ 0.6, which is ₹10,00,000. Adding 40% to the cost instead gives ₹8,40,000, which is a 28.6% margin and not what you wanted. Switch the calculator to "Find the price" and it does this for you.

Everything that only happens because you won the work. For a services or staffing business that is the salaries and contractor pay of the people on the job, plus anything bought specifically for it. It is not the rent, the software, the finance team or the salespeople, because those run whether or not the job exists. Those belong below the gross margin line. The rule matters less than applying the same one every time.

It depends entirely on the business. A contract staffing desk and a high-touch consulting practice have very different cost structures, and a figure that would be comfortable for one would be a crisis for the other. This page does not quote an industry benchmark, because that number moves by sector and by year and one without its source attached is not worth planning around. The useful comparison is your own margin last quarter, and the same figure across your own clients.

No. Gross margin stops at the cost of delivery. Everything the business spends that is not tied to a specific job, the office, the software, the admin and sales salaries, still has to come out of it before anything is profit. A business can hold a strong gross margin and still lose money if those overheads are larger than what the margin leaves.

Without. GST is collected on behalf of the government rather than earned, so including it inflates the revenue and the margin with it. Use the pre-tax figures on both sides, and be consistent.

Yes. The arithmetic is the same and the cost line is what changes: for a product business it is the cost of goods sold, and for a services or staffing business it is the cost of the people delivering the work. The copy on this page is written for the second because that is who the site serves, but nothing in the sum is specific to it.

Know the Margin on Every Placement

Niyuk holds bill rates, pay rates and the hours behind them in one place, so the margin on a contract is a number you can look up rather than one you rebuild in a spreadsheet each month.

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