Profit Margin Calculator
Profit Margin Calculator
Enter what an item costs you and what you sell it for, and see the profit, the gross margin and the markup side by side — the two percentages people most often mix up.
Profit margin
Cost $750, selling price $1,000
Margin and markup
- price
- the selling price, net of GST or VAT
- cost
- the cost of the item sold: purchase or production cost
- Converting
- margin = markup ÷ (100 + markup) × 100; markup = margin ÷ (100 − margin) × 100
Worked example
Cost $750, selling price $1,000
Profit = 1,000 − 750 = $250
Margin = 250 ÷ 1,000 × 100 = 25.00%
Markup = 250 ÷ 750 × 100 = 33.33%
The markup you need for a target margin
| Margin on price | Markup on cost |
|---|---|
| 10% | 11.11% |
| 20% | 25.00% |
| 25% | 33.33% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100.00% |
| 60% | 150.00% |
| 75% | 300.00% |
The margin a given markup gives you
| Markup on cost | Margin on price |
|---|---|
| 10% | 9.09% |
| 20% | 16.67% |
| 25% | 20.00% |
| 30% | 23.08% |
| 50% | 33.33% |
| 100% | 50.00% |
| 150% | 60.00% |
| 200% | 66.67% |
Margin and markup are not the same number
Both figures start from the same profit: the selling price minus the cost. Margin divides that profit by the selling price; markup divides it by the cost. Because the price is bigger than the cost whenever you make a profit, the markup is always the larger percentage. In the example, a $250 profit on a $1,000 sale is a 25% margin but a 33.33% markup.
The confusion costs money. Adding 25% to a $100 cost gives a $125 price, and a profit of $25 on $125 is a margin of only 20%. A shopkeeper who wants a 25% margin and marks goods up by 25% earns a fifth less than planned on every sale. The tables above convert between the two, and the markup calculator works out the price for either target.
This is gross margin: it covers the cost of the item only. Rent, salaries, marketing, payment fees, delivery and returns come out of it, so a healthy-looking gross margin can still hide a loss. To see how many sales cover those fixed costs, use the break-even calculator. Enter prices without GST or VAT: tax you collect for the government is not revenue, and including it inflates the margin — the GST calculator separates it out.
What counts as a good margin depends entirely on the trade. Grocery, fuel and distribution run on thin margins and high volume; software, services and specialist goods run on wide ones. Compare your figure with your own history and with businesses like yours, not with a general rule. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How do I calculate profit margin?
Margin = (selling price − cost) ÷ selling price × 100. Selling for $1,000 an item that cost $750 is a 25% margin.
What is the difference between margin and markup?
Margin is profit as a share of the price; markup is profit as a share of the cost. The same $250 profit is a 25% margin and a 33.33% markup.
Is a 25% markup a 25% margin?
No. A 25% markup gives a 20% margin. To earn a 25% margin you need a markup of 33.33%.
Should I include GST in the selling price?
No. Use prices without GST or VAT. The tax you collect is passed on to the government, so counting it as income overstates your margin.
Related calculators
References
- Garrison RH, Noreen EW, Brewer PC. Managerial Accounting. McGraw-Hill. Gross margin, contribution margin and cost-plus pricing (markup on cost).
- Horngren CT, Datar SM, Rajan MV. Cost Accounting: A Managerial Emphasis. Pearson. Chapter on cost–volume–profit analysis: contribution margin, break-even point and target operating income.