Ritu sells chikankari kurtis online from Lucknow. One sells for ₹1,000. The fabric, the embroidery and the stitching cost her ₹400.
Hear that, and it sounds like a fortune. ₹600 on every kurti.
Now follow the ₹600. Rent and salaries take ₹200. Instagram ads take ₹150. The courier and the kurtis sent back take ₹140. Tax takes ₹30.
Ritu keeps ₹80.
The tag said ₹600. The bank says ₹80.
Two margins
Gross margin is what’s left of the price after the cost of making the thing. For Ritu, ₹600 out of ₹1,000: 60%.
Net margin is what’s left after every cost: rent, salaries, ads, delivery, returns and tax. For Ritu, ₹80 out of ₹1,000: 8%.
Gross margin tells you if the product is priced well. Net margin tells you if the business works. A big gap between them means the money is leaking somewhere after the sale.
Think of a salary slip
Your offer letter says ₹1 lakh a month. That’s your gross salary. Then come tax, provident fund and insurance, and your bank shows something much smaller.
Nobody pays rent with the number on the offer letter. You live on what’s in the bank.
Thin, and still strong
A small net margin isn’t always a weak business.
In 2024-25, DMart kept about ₹14.50 of every ₹100 you spent there after paying its suppliers. After everything else, about ₹4.60.
That’s thin. But DMart sold goods worth almost ₹60,000 crore that year, and ₹4.60 on every ₹100 added up to about ₹2,700 crore. A thin slice of a very big cake.
Where you’ll spot it
- Restaurants. The paneer tikka costs little to make. Rent, staff and the delivery app’s commission eat most of what’s left.
- Brands built on Instagram. Big gross margins, then ad bills to keep finding new buyers.
- “Sale! 40% off.” With a 60% gross margin, each sale still covers what the item cost to make. With 20%, every sale loses money.
How to use it
- Work out the gross margin of what you sell: price minus the cost of making it.
- Follow the rest. List every cost of running the business and work out how much each takes from one sale.
- Fix the biggest leak first. Often it’s ads, returns or rent, not the product.
And next time a price looks like a rip-off, remember Ritu. Most of the markup never reaches anyone’s pocket.
The tag shows the markup. The bank shows the margin.
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