Profit Margin Calculator

Margin measures profit against the selling price. Markup measures the same profit against cost. They describe one transaction and they are never the same number, and confusing them is how businesses accidentally price below their own target.

One product, two percentages

An item costs 18 and sells for 45.

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

Both are correct. Both describe the same 27. A buyer who is told to "hit 60%" and applies 60% to cost will 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 reports both, every time, so the number you quote to someone else is unambiguous.

Margin is always the smaller one

Because the denominator is larger, margin is always below markup for any profitable sale. A few reference points worth memorising:

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

This is gross margin, and only gross margin

The tool takes two inputs: cost of goods sold and selling price. There is no field for operating expenses and no net margin in the output — this is gross margin only, and rent, salaries and marketing sit below the line it draws.

The distinction is not academic. 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 the gross profit afterwards. A business running a healthy 60% gross margin can still be losing money every month, and this calculator will tell you nothing about that.

To get to net margin you need a full profit and loss statement, not two numbers.

Getting the cost figure right

Understating cost is the commonest way to produce a flattering margin. 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.

Exclude anything that does not scale with the unit — that belongs in operating expenses, not cost of goods sold. Where a business systematically leaves freight out of cost, the reported gross margin is overstated by a consistent few points, which is 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 at which gross profit finally covers fixed costs, use the break-even calculator. To see what a promotional reduction does to the selling price you built this margin on, use the discount calculator.