Profit Margin Calculator
Margin and markup are the two most confused numbers in small business — mixing them up means underpricing everything you sell. This profit margin calculator shows both from cost and selling price, so you always know which is which.
Margin is profit as a share of the selling price; markup is profit as a share of the cost. A 50% markup is only a 33% margin.
Enter valid values to see the results.
Formula
Margin divides by the selling price (revenue), markup divides by the cost. Margin can never exceed 100%; markup can be any size. Investors and accountants speak in margins; retailers often think in markups.
What you need
- Cost (COGS): everything directly attributable to the unit — materials, manufacturing, inbound shipping, packaging.
- Selling price: what the customer actually pays you, before sales tax or VAT.
- For services, cost includes the labour hours at their true hourly cost, not just expenses.
Worked example
Practical tips
- Set prices from the target margin: Price = Cost ÷ (1 − margin). For a 40% margin on a $60 cost: 60 ÷ 0.6 = $100.
- Track margin per product line, not just overall — one unprofitable line hides easily in a healthy average.
- Discounts come straight out of margin: a 10% discount on a 30% margin cuts profit by a third.
- Revisit margins when supplier prices change; a 5% cost increase on a 30% margin needs a price rise to hold it.
Markup to margin conversion
| Markup | Margin | Multiplier on cost |
|---|---|---|
| 25% | 20% | × 1.25 |
| 50% | 33.3% | × 1.50 |
| 100% | 50% | × 2.00 |
| 150% | 60% | × 2.50 |
Common mistakes
- 1 Confusing margin with markup and underpricing: a 50% markup yields only a 33% margin.
- 2 Calculating margin on revenue that includes sales tax or VAT — strip taxes first.
- 3 Forgetting costs like payment fees, shipping and returns, which all erode the real margin.
Frequently asked questions
What is the difference between margin and markup?
Margin = profit ÷ selling price; markup = profit ÷ cost. A $40 profit on a $100 sale is a 40% margin but a 66.7% markup on the $60 cost.
What is a good profit margin?
It varies by industry: grocery retail runs 1–3%, restaurants 3–9%, software 70%+. As a rough guide for product businesses, 40–50% gross margin gives room for overheads and discounts.
How do I price for a target margin?
Price = Cost ÷ (1 − target margin as a decimal). For a 35% margin on an $80 cost: 80 ÷ 0.65 = $123.08.
Can margin be over 100%?
No — margin is bounded by the selling price. Markup can exceed 100% freely; a 400% markup equals an 80% margin.