Profit Margin Calculator

Margin measures profit against the selling price. Markup measures the same profit against cost. Both describe one transaction but they're never the same number, and mixing them up is how businesses end up pricing below their own target without noticing.

One product, two percentages

An item costs 18 and sells for 45.

• Gross profit: 27
• Margin: 60%, which is profit divided by the 45 selling price
• Markup: 150%, which is the same 27 divided by the 18 cost

Both are correct, and both describe the same 27. But if a buyer is told to "hit 60%" and applies 60% to cost, they'll price the item at 28.80 and lose 16.20 a unit against the target.

Margin % = (price − cost) ÷ price × 100
Markup % = (price − cost) ÷ cost × 100

The result panel always shows both, so whoever you quote the number to knows which one you mean.

Margin is always the smaller one

Margin divides by the larger number (the price), so for any profitable sale it's always lower than markup. These reference points are handy to remember:

Margin gets closer to 100% but can never reach it while cost is above zero. Markup has no ceiling at all.

This is gross margin only

The tool takes two inputs: cost of goods sold and selling price. There's no field for operating expenses and no net margin in the output. Rent, salaries and marketing all sit below the line it draws.

This matters in practice. Gross margin covers the cost of the goods themselves and nothing else. Rent, salaries, software, marketing, payment processing, shipping, returns and tax all come out of gross profit afterwards. A business with a healthy 60% gross margin can still be losing money every month, and this calculator won't show you that.

For net margin you need a full profit and loss statement. Two numbers won't get you there.

Getting the cost figure right

The most common way to end up with a flattering margin is to understate cost. Landed cost should include:

• The unit purchase price or manufactured cost.
• Inbound freight and customs duty.
• Import handling and any inspection charges.
• Direct labour attributable to that unit, for a manufactured item.

Leave out anything that doesn't scale with the unit, because that belongs in operating expenses. If a business routinely leaves freight out of cost, its reported gross margin is overstated by a consistent few points, and that's enough to make a marginal product look viable.

The rest of the pricing set

To price forward from a cost by applying a markup, use the markup calculator. To find the volume where gross profit finally covers fixed costs, use the break-even calculator. And to see what a promotional reduction does to the selling price you built this margin on, use the discount calculator.