Profit Margin Calculator
Enter what an item costs and what you sell it for to get the profit, margin and markup, then find the price that gives the margin you want.
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Margin and markup are the two numbers behind every pricing decision, and they are easy to mix up. Both measure the same profit, but against different bases, so the same sale can be a 40% margin and a 66.67% markup at once. This calculator shows both, along with the profit per item, and works backwards from the margin you want to the price you should charge.
How to use the profit margin calculator
- Enter the cost per item: what you pay to make or buy one unit.
- Enter the selling price per item, before sales tax.
- Optionally enter a target margin to see the price you would need to charge to reach it.
The results update as you type: profit margin, profit per item, markup on cost and the price for your target margin.
The formulas
Profit = Price − Cost
Margin = Profit ÷ Price × 100%
Markup = Profit ÷ Cost × 100%
Price for a target margin = Cost ÷ (1 − Margin)You can convert between the two without knowing the price: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin).
Worked example
A shop buys a jacket for $60 and sells it for $100.
- Profit = 100 − 60 = $40.00
- Margin = 40 ÷ 100 = 40%
- Markup = 40 ÷ 60 ≈ 66.67%
The owner wants a 50% margin on future stock. The price needed is 60 ÷ (1 − 0.50) = $120.00. Check it: at $120 the profit is $60, which is half of the price.
Margin and markup side by side
The same profit looks very different depending on the base. For a $60 cost:
| Margin | Markup | Price |
|---|---|---|
| 20% | 25% | $75.00 |
| 30% | 42.86% | $85.71 |
| 40% | 66.67% | $100.00 |
| 50% | 100% | $120.00 |
A 100% markup, doubling the cost, gives a 50% margin. Markup is always the larger of the two numbers.
Why discounts hit margins hard
Take the jacket again. A 10% discount drops the price from $100 to $90, but the cost stays at $60, so profit falls from $40 to $30. That is a 25% cut in profit, and the margin falls from 40% to 33.33%. To earn the same total profit you would need to sell a third more jackets. Use our discount calculator to find sale prices, then check the margin here before you commit.
Tips for pricing
- Know your full cost. Include shipping, packaging, payment fees and returns in the cost per item. Leaving them out overstates the margin.
- Set prices from margin, not markup, if your accounts and targets are in margin terms. It avoids the common markup-for-margin mix-up.
- Watch the margin, not just revenue. Growing sales at a lower margin can earn less money than fewer sales at a healthy margin.
- Use psychological prices carefully. Rounding $120 down to $119 changes the margin by under half a point here, but across a whole catalogue the small cuts add up.
Common mistakes
- Adding the target percentage to cost. Marking a $60 item up by 30% gives $78, which is only a 23.08% margin, not 30%. To get a 30% margin, charge 60 ÷ 0.7 = $85.71.
- Including sales tax in the price. Tax collected from customers isn’t your revenue. Use the price before tax.
- Comparing margin with someone else’s markup. A supplier quoting a “50% markup” and a retailer talking about a “50% margin” mean very different prices.
- Forgetting overheads. A healthy gross margin can still mean a loss once rent, wages and marketing are paid. Gross margin has to cover all of them.
Frequently asked questions
What is the difference between margin and markup?
Both compare profit with something else. Margin divides profit by the selling price, while markup divides it by the cost. Selling for $100 something that cost $60 gives a $40 profit, which is a 40% margin but a 66.67% markup.
What is a good profit margin?
It varies widely by industry. Grocery stores often run on thin margins and rely on volume, while software and luxury goods can have very high gross margins. Compare yourself with businesses like yours rather than a single benchmark, and make sure the margin covers your overheads.
Is this gross margin or net margin?
Gross margin, when the cost you enter is the direct cost of the item, such as materials or wholesale price. Net margin also subtracts overheads such as rent, wages, marketing and tax, so it is always lower. You can enter a fully loaded cost per item to approximate net margin.
How do I find the price for a target margin?
Divide the cost by one minus the margin. For a 50% margin on a $60 item, 60 ÷ (1 − 0.5) = $120. The calculator does this when you enter a target margin.
Can a margin be more than 100%?
No. Margin is profit as a share of the price, and profit can never exceed the price unless the cost is negative. Markup has no upper limit, so a 300% markup is possible, and it equals a 75% margin.