Profit Margin Calculator

Margin and markup measure the same profit against different things

Gross profit is the selling price minus the cost. Margin expresses that profit as a share of the selling price; markup expresses it as a share of the cost. Buy something for $75, sell it for $100, and the $25 profit is a 25% margin (25 ÷ 100) and a 33.33% markup (25 ÷ 75).

Both numbers are correct. They answer different questions. Margin tells you how much of every sale you keep: at a 25% margin, a quarter of each dollar taken is gross profit. Markup tells you how much to add to a cost to reach a price. Because the cost is always smaller than the price when you are making money, the markup percentage is always the larger of the two.

Converting between them takes one formula each way. Markup = margin ÷ (1 − margin), and margin = markup ÷ (1 + markup), with both written as decimals. A 20% margin needs a 25% markup. A 50% markup gives a 33.3% margin. A 100% markup — doubling the cost — gives a 50% margin. The equivalents table in the calculator lists the common pairs.

The costly mistake: treating a margin target as a markup

Suppose you need a 30% margin and you add 30% to your cost. A $50 item becomes $65, which is a $15 profit on a $65 sale: a 23.1% margin, not 30%. To earn a genuine 30% margin you divide by the share of the price you keep instead: price = cost ÷ (1 − margin) = $50 ÷ 0.70 = $71.43.

Across a whole business the gap is large. On $500,000 of goods bought in, a 30% markup brings in $650,000 of sales and $150,000 of gross profit. A real 30% margin brings in $714,286 and $214,286. The difference — about $64,000 — is profit that was planned and never existed, usually discovered when the accounts are done.

The calculator avoids the mix-up by asking which figure you know. Choose "Cost and the margin I want", enter $50 and 30%, and it gives $71.43 along with the 42.86% markup that produces it.

Working back from a price

Sometimes the price is fixed and the cost is the variable. A product has to retail at $40 to compete, and your business model needs a 60% gross margin. The most you can pay for it is $40 × (1 − 0.60) = $16. Choose "Selling price and margin" to get that ceiling directly, which is a useful number to have before a conversation with a supplier.

The same mode works for checking a supplier's suggested retail price. If the price list shows a cost of $24 and a suggested price of $39.99, the cost-and-price option shows the margin you would make at that price — 39.98% — before any discounting.

Gross margin is not net margin

Everything this calculator reports is gross: price minus the direct cost of the item. It does not include rent, wages, marketing, software, insurance or tax. Net margin — what is left after all of those — is always lower, and a product with a healthy-looking gross margin can still lose money once overheads are shared out.

That is why it is worth knowing what share of revenue your overheads take. If running the business costs 30% of sales, every product needs a gross margin above 30% simply to break even, and a 40% markup — a 28.6% margin — loses money despite sounding comfortable.

Margins also vary enormously between industries. Supermarkets famously run on thin margins and high volume, while software companies often have very high gross margins. Compare yourself with businesses like yours, not with a general rule of thumb.

What to count as cost, and what to leave out

For a meaningful margin, the cost should be the full cost of getting one unit to the point of sale: the purchase price plus inbound shipping, import duties, packaging and any per-unit fees such as marketplace commission or card processing. Leaving them out flatters the margin and hides where profit is going.

Enter prices before sales tax or VAT. Tax collected on a sale is held for the government rather than earned, so including it inflates both the price and the margin.

The calculator works per unit, but percentages scale: enter total cost of goods sold and total revenue for a month, and the margin it reports is your gross margin for that month.