Profit margin calculator
Margin, markup and the price that gets you there. They are not the same number.
Result
- Gross margin
- 40%
- Profit
- $40.00
- Markup
- 66.67%
How this was calculated
Profit
Price − cost
$100.00 − $60.00 = $40.00
Margin
Profit ÷ price × 100
$40.00 ÷ $100.00 × 100 = 40%
Markup
Profit ÷ cost × 100
$40.00 ÷ $60.00 × 100 = 66.67%
What this calculation assumes
- Margin is profit as a share of the selling price; markup is profit as a share of cost. A 50% markup is only a 33.3% margin.
- Cost here is the direct cost of the item (cost of goods sold). Overheads, shipping, payment fees and tax are not included, so this is gross margin, not net profit.
In short
Margin is profit ÷ price and markup is profit ÷ cost. An item that costs $60 and sells for $100 has a 40% margin and a 66.7% markup. To reach a target margin, price = cost ÷ (1 − margin).
Margin and markup
Margin = (price − cost) ÷ price Markup = (price − cost) ÷ cost
Both start from the same profit but divide by different numbers. An item that costs $60 and sells for $100 makes $40 profit: a 40% margin and a 66.7% markup. Mixing them up is one of the most common pricing mistakes: pricing at a 40% markup when you meant a 40% margin leaves you with a 28.6% margin.
Price for a target margin
Price = cost ÷ (1 − margin)
To make a 40% margin on a $60 cost, the price is $60 ÷ 0.6 = $100. A margin can never reach 100%, because that would need an infinite price.
Using it to set prices
Enter a cost and a price to see the profit, the margin and the markup together, or enter a cost and a target margin or markup to get the price. Include every cost of selling the item, not only what you paid for it: shipping, packaging, payment fees and an allowance for returns. A margin that looks healthy on the purchase price can be thin once those are counted.
Questions people ask
What is a good profit margin?
It varies widely by industry: grocery retail runs on thin margins while software and services can be far higher. Compare against businesses like yours.
Is this gross or net margin?
Gross. It counts only the direct cost of the item. Net margin also subtracts rent, wages, marketing, fees and taxes.
What margins do different industries make?
It depends on the industry. Grocery stores often run on gross margins of 25% to 30%, while software and luxury goods can exceed 70%. Compare with businesses like yours and remember that rent, wages and marketing come out of the gross margin.