# Where the Money Goes

> Gross margin and net margin, and why a business can sell at a big markup and still keep very little.

Money · 2026-10-23 · by Manas Jain · https://samanar.in/a/gross-and-net-margin

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

1. **Work out the gross margin** of what you sell: price minus the cost of making it.
2. **Follow the rest.** List every cost of running the business and work out how much each takes from one sale.
3. **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.