Profit Margin Calculator

How it works

Three numbers describe the profitability of a sale. Profit is simply price minus cost. Profit margin expresses that profit as a share of the selling price: margin = profit / price. Markup expresses the same profit as a share of the cost: markup = profit / cost. Because the denominators differ, markup is always higher than margin for the same transaction: earning $40 on a $100 sale with a $60 cost is a 40 percent margin but a 66.7 percent markup. Confusing the two is a classic pricing mistake: pricing with a 40 percent markup when you need a 40 percent margin underprices the product. To price from a target margin, divide cost by (1 - margin): a $60 cost at a 40 percent target margin needs a price of 60 / 0.6 = $100. This calculator works per unit and before overheads such as rent, salaries and marketing. Businesses track gross margin (after direct costs, like these figures) and net margin (after all expenses), which is always lower. Healthy margins vary enormously by industry, so compare yours with sector norms rather than a single universal target.