Profit Margin Calculator
Calculate profit margin and markup instantly. Enter your cost and selling price to see margin %, markup %, and gross profit side by side.
How much you pay for the product
How much you sell the product for
per unit
of selling price
of cost price
How to Calculate Profit Margin
Profit margin measures how much of your selling price is actual profit. To calculate margin, divide your gross profit by the selling price, then multiply by 100. This tells you what percentage of each sale is profit versus cost recovery.
Profit Margin = ((Selling Price - Cost) / Selling Price) × 100
Example: A product costing $50 sold for $80 has a profit margin of 37.5%. That means 37.5 cents of every dollar earned is profit.
How to Calculate Markup
Markup shows how much you've increased the price above your cost. To calculate markup, divide your gross profit by the cost price, then multiply by 100. Retailers and wholesalers commonly use markup to set selling prices based on desired profit levels.
Markup = ((Selling Price - Cost) / Cost) × 100
Example: A product costing $50 sold for $80 has a 60% markup. You've added 60% of the cost as profit.
Margin vs Markup: What's the Difference
Margin and markup both measure profit, but from different perspectives. Understanding the difference is crucial for pricing decisions and financial analysis. Many business owners confuse these metrics, leading to pricing errors.
Profit Margin
- • Profit as % of selling price
- • Always less than 100%
- • Used in financial statements
- • Better for comparing businesses
Markup
- • Profit as % of cost
- • Can exceed 100%
- • Used for pricing decisions
- • Common in retail/wholesale
Key insight: Margin is always lower than markup for the same transaction. A 50% markup equals approximately 33% margin. A 100% markup (doubling the price) equals a 50% margin.
Markup to Margin Converter
Converting between markup and margin is essential when working with different departments or comparing businesses. Use these formulas to convert between the two metrics:
Markup to Margin:
Margin = Markup / (1 + Markup)
Margin to Markup:
Markup = Margin / (1 - Margin)
| Markup | Margin |
|---|---|
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 33% | 25.0% |
| 50% | 33.3% |
| 75% | 42.9% |
| 100% | 50.0% |
Frequently Asked Questions
What is a good profit margin?
A good gross margin calculator benchmark varies by industry. Retail businesses typically see 25-50% gross margins, while software companies may achieve 70-90%. Net profit margins of 10-20% are considered healthy for most businesses. Consider your industry, competition, and operating costs.
Why is my margin always lower than my markup?
Margin is calculated against the larger number (selling price), while markup is calculated against the smaller number (cost). This mathematical relationship means margin will always be lower than markup for the same transaction, which is why the margin formula and markup formula produce different results.
How do I price my products for a target margin?
To achieve a target margin, use: Selling Price = Cost / (1 - Target Margin). For example, to achieve a 40% margin on a $50 product: $50 / (1 - 0.40) = $83.33 selling price.
Should I include shipping in my margin calculation?
Yes, for accurate profitability analysis. Use our advanced mode to include shipping, customer acquisition, and packaging costs. This gives you the true net margin after all expenses, helping you set sustainable prices.
Need more business calculators?
Check out our other free tools to help you run your business more effectively.