Profit Margin Calculator
Calculate your profit margin, gross margin percentage, and markup percentage from revenue and cost. Understand the difference between margin and markup at a glance.
Revenue Breakdown
Gross Profit
$40.00
Profit Margin
40.00%
Markup
66.67%
Cost as % of Revenue
60.00%
How to use
Enter your revenue (selling price) and cost (what you paid). Click calculate to see your gross profit in dollars, profit margin as a percentage, and markup percentage. You can calculate for a single item or your total business figures.
Formulas
Profit = Revenue - Cost
Margin % = (Profit / Revenue) × 100
Markup % = (Profit / Cost) × 100
Margin is the percentage of the selling price that is profit. Markup is the percentage added to the cost to get the selling price. A 50% markup results in a 33.3% margin. They measure the same profit from different perspectives.
When this calculator helps
Small business owners, freelancers, and e-commerce sellers use this calculator daily to set profitable prices. Knowing your margin helps you decide whether a product is worth selling, compare profitability across your product line, and negotiate with suppliers. Retail buyers use margin calculations to evaluate wholesale deals, while entrepreneurs use them in business plans to project profitability. If you are pricing services, understanding the difference between margin and markup prevents the common mistake of underpricing by confusing the two.
Examples
Example 1: E-Commerce Product
You source a product for $12 and sell it for $29.99. Your profit is $17.99, giving you a 60% margin and a 150% markup. After accounting for $5 in shipping and platform fees, your net profit drops to $12.99 per unit with a 43.3% net margin, still healthy for e-commerce.
Example 2: Coffee Shop Drink
A latte costs $0.80 in ingredients (milk, espresso, cup, lid) and sells for $5.50. The gross margin is 85.5% ($4.70 / $5.50). However, after labor, rent, and equipment costs allocated per drink (roughly $3.00), the net margin drops to about 30.9%, typical for food service.
Example 3: Freelance Service Pricing
A graphic designer charges $2,000 for a logo project. Direct costs include $200 for stock assets and $50 for software subscriptions. The gross margin is 87.5%. But if the project takes 25 hours and the designer values time at $50/hour, the effective cost is $1,500, reducing the real margin to 25%.
Things to watch
- •Never confuse margin with markup, a 50% markup only gives you a 33% margin. Always clarify which metric you are discussing with partners or suppliers.
- •Include all costs (shipping, payment processing fees, returns) when calculating your true margin, not just the product cost.
- •Track margin by product to identify which items are most profitable, high revenue items may have low margins and vice versa.
- •If your margin is below your industry average, investigate whether you can reduce costs or increase prices before scaling up volume.
- •Volume discounts from suppliers can a lot improve margins, negotiate better rates once you have consistent order quantities.
Sources and methodology
Last reviewed: Checked during calculator QA. We review formulas, default assumptions, and examples against public references when a formal source applies.
Method: This calculator uses the formula explained on this page. We also check example results by hand to catch obvious mistakes.
Found something off? Send a correction with the page URL, inputs, result, and expected result.
Common questions
- What is the difference between margin and markup?
- Margin is profit as a percentage of selling price. Markup is profit as a percentage of cost. If you buy for $60 and sell for $100, your margin is 40% ($40/$100) but your markup is 66.7% ($40/$60). They're different ways of expressing the same profit.
- What is a good profit margin?
- It varies widely by industry. Software companies often have 70-80% gross margins. Retail averages 25-50%. Restaurants run 3-9% net margins. Compare your margins to your specific industry benchmarks rather than a universal standard.
- How do I calculate the selling price from a desired margin?
- To achieve a target margin, use: Selling Price = Cost / (1 - Desired Margin). For example, if your cost is $60 and you want a 40% margin: $60 / (1 - 0.40) = $100 selling price. This is different from simply adding 40% to cost, which would give $84 (a 40% markup but only a 28.6% margin).
- What is the difference between gross margin and net margin?
- Gross margin only considers direct costs of goods sold (materials, manufacturing). Net margin accounts for all expenses including rent, salaries, marketing, taxes, and interest. A business might have a healthy 60% gross margin but only a 10% net margin after all operating costs are subtracted.
- Why is margin more useful than markup for business decisions?
- Margin shows profit as a share of revenue, making it directly comparable across products and businesses. A 25% margin always means 25 cents of profit per dollar of revenue. Markup percentages can be misleading, a 100% markup sounds impressive but equals only a 50% margin.