Question 1

Why is markup percentage always higher than margin percentage?

Accepted Answer

Margin is calculated with selling price in the denominator, which is always larger than cost. Markup is calculated with cost in the denominator. A smaller denominator results in a higher percentage.

Question 2

How do I calculate price based on a target margin?

Accepted Answer

To find the selling price for a target margin: Price = Cost / (1 - Margin/100). For a 20% margin on a ₹100 cost: 100 / 0.80 = ₹125.

Question 3

What is gross margin vs net profit margin?

Accepted Answer

Gross margin evaluates profits relative to direct manufacturing costs (COGS). Net margin accounts for all expenses (rent, salaries, taxes, interest) relative to sales revenue.

Question 4

What is a healthy profit margin for a small business?

Accepted Answer

Healthy margins vary by industry. Software development services often achieve margins above 30-50%, while retail/wholesale food markets typically operate on tight margins between 2% and 10%.

Question 5

How does volume affect margins and markups?

Accepted Answer

Higher sale volume allows businesses to tolerate lower profit margins (economies of scale). Luxury goods typically sell in low volumes but require high margins and markups to remain profitable.

Profit Margin

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