How to use the Profit Margin Calculator
- Choose Margin to analyze a price, or one of the target modes to find a price.
- Enter the cost of one unit.
- Enter the selling price, or the target margin or markup you want.
- Read the gross profit, margin, markup and selling price.
Features
- Gross profit, margin and markup from cost and price
- Selling price for a target margin
- Selling price for a target markup
- Flags prices below cost in red
- Cost-versus-profit donut
Margin and markup are not the same
Both measure profit as a percentage, but against different bases. Margin compares profit with the selling price; markup compares it with the cost. Mixing them up is one of the most common pricing mistakes in small businesses.
- Gross profit = Price − Cost
- Margin = Gross profit ÷ Price × 100
- Markup = Gross profit ÷ Cost × 100
Example: an item costs 60 and sells for 100. Gross profit is 40, the margin is 40% and the markup is 66.67%. Same item, same profit, two different percentages.
Pricing for a target
To reach a target margin, divide the cost by one minus the margin: Price = Cost ÷ (1 − Margin ÷ 100). For a 40% margin on a cost of 60, the price is 60 ÷ 0.60 = 100. To reach a target markup, multiply instead: Price = Cost × (1 + Markup ÷ 100). A 50% markup on 60 gives 90.
A frequent error is adding the target margin as if it were a markup. Adding 40% to a cost of 60 gives 84, and the actual margin at that price is only 28.6%.
Margin to markup conversion
Convert with Markup = Margin ÷ (1 − Margin) and Margin = Markup ÷ (1 + Markup), using decimals.
| Margin | Equivalent markup |
|---|---|
| 10% | 11.11% |
| 20% | 25% |
| 25% | 33.33% |
| 33.33% | 50% |
| 40% | 66.67% |
| 50% | 100% |
| 60% | 150% |
Margin can never reach 100%, because profit cannot exceed the price. Markup has no upper limit.
Gross margin versus net margin
This calculator works out gross margin: the price minus the direct cost of the item. Net margin also subtracts overheads such as rent, wages, marketing and tax. A product with a healthy 50% gross margin can still lose money if overheads are high. To see how many sales cover your fixed costs, use the Break-Even Calculator.
Practical tips
- Include every direct cost in the unit cost: inbound shipping, packaging, payment fees and marketplace commissions.
- Calculate margin on prices before sales tax or VAT, since the tax is passed on to the government.
- Before running a sale, check what the discount does to your profit with the Discount Calculator. A 20% discount on an item with a 40% margin removes half the profit.
Results are estimates for information only and are not financial advice.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit as a percentage of the selling price; markup is profit as a percentage of the cost. A 50% markup equals a 33.33% margin.
How do I calculate the selling price from a margin?
Divide the cost by one minus the margin as a decimal. For a 30% margin on a cost of 70, the price is 70 ÷ 0.70 = 100.
What is a good profit margin?
It depends heavily on the industry. Grocery and other high-volume businesses run on thin margins, while software and specialty products often have high ones, so compare with businesses like yours.
Can profit margin be negative?
Yes. If the price is below the cost, the gross profit and margin are negative, meaning each sale loses money. The calculator shows this in red.
Does gross margin include overheads?
No. Gross margin only subtracts the direct cost of the goods sold. Overheads such as rent and salaries are subtracted to get net margin.