Business Calculators
Profit Margin Calculator
Enter your cost and selling price to get gross profit, profit margin and markup side by side, so you can price with confidence instead of guessing.
Overview
Why use a free profit margin calculator?
This free profit margin calculator shows what you actually keep on a sale. Enter your cost and selling price to get gross profit, margin and markup together, or set the margin you want and let it work out the price you need to charge.
Margin and markup are always shown side by side, and that is deliberate. They describe the same profit against different bases: margin against the selling price, markup against the cost. They are never the same number. A 50% markup is a 33.3% margin. A business that prices by adding 50% while budgeting on 50% margin is short by a third of the profit it planned for, on every single sale.
The arithmetic is shown alongside the answer, because a calculator that returns a number without explaining it does not stop the next person dividing profit by the wrong figure. Seeing the same profit over two different denominators is the fastest way the difference sticks.
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Step by step
How to calculate profit margin and markup
Enter your cost
Add what the item or service costs you to deliver.
Enter your price, or a target margin
Either type your selling price, or set the margin you want and let the calculator work out the price.
Compare margin and markup
Read the gross profit, margin percentage and markup percentage together so you know which number you are quoting.
What you get
- Gross profit, margin and markup at once
- Solve for profit, selling price or cost
- Per-unit and batch quantities
- Clear margin-versus-markup comparison
- Formulas shown alongside results
Background
What is profit margin, and how does it differ from markup?
Gross profit is the simplest figure here: selling price minus what the item or service cost you to deliver. Sell for 150 what cost you 100 and the gross profit is 50. That much is uncontroversial. The confusion starts as soon as anyone turns it into a percentage, because there are two reasonable things to divide by and they give very different answers.
Margin divides profit by the selling price. On that sale, 50 ÷ 150 is 33.3%. It answers the question that matters when you are looking at revenue: of every pound that comes in, how much do I keep? That is why accountants, investors and financial reports use margin almost exclusively.
Markup divides the same profit by the cost. 50 ÷ 100 is 50%. It answers the question that matters when you are setting a price from a supplier invoice: how much do I add? That is why buyers, wholesalers and anyone working from a cost sheet tends to think in markup.
Both are correct. The damage comes from moving between them without converting. Margin is always the smaller number, and the gap widens as the figures rise: a 25% markup is a 20% margin, a 50% markup is a 33.3% margin, and a 100% markup (doubling your cost) is only a 50% margin. Someone told to hit 40% who applies it as markup lands on a 28.6% margin instead, and will not find out until the year-end accounts are short.
There is also a hard ceiling worth understanding. Markup has no upper limit: you can mark something up by 500% if the market will bear it. Margin cannot reach 100%, because that would mean the entire selling price is profit and the item cost you nothing. Any tool offering to price at a 100% margin is either wrong or solving a different problem.
Not to be confused with
- Markup
- The same profit divided by cost rather than by price, so it is always the larger percentage. Useful for setting prices from a cost sheet, dangerous when reported as though it were margin. Convert rather than assume: margin = markup ÷ (1 + markup).
- Net profit margin
- This calculator works out gross margin: price against the direct cost of delivering the thing. Net margin comes after rent, salaries, software, marketing and tax. A healthy gross margin can still leave nothing at the bottom, which is why the two are never used interchangeably.
- Contribution margin
- Price minus the costs that vary with each unit sold, used to work out how many units cover your fixed costs. Close to gross margin in simple businesses and quite different in complex ones, where some cost of sale does not vary per unit.
- Discount
- A discount comes off the price, so it comes almost entirely out of margin. Cutting a 33.3% margin item by 10% does not reduce profit by 10%. It removes 30% of it, because the cost does not move when the price does.
- VAT and sales tax
- Tax you collect is not revenue and must be excluded from both sides before calculating anything. Including it inflates the price and flatters the margin. If you only have a tax-inclusive figure, divide by one plus the rate rather than subtracting the percentage.
- Return on investment
- ROI measures a gain against the money put in, over some period. Margin measures profitability of a sale at the moment it happens. A product can carry an excellent margin and still be a poor investment if it barely sells.
Reference
What goes into the calculation
The two inputs look obvious and are where nearly all the error lives. What counts as cost, and which price you use, decide whether the percentage means anything at all.
Cost per unit
What it genuinely costs you to deliver one unit: the purchase price, plus anything that scales with it. Understating this is the most common way a margin comes out flattering and wrong.
Required
Selling price per unit
What the customer pays, excluding any tax you collect on someone else's behalf. Use the price actually charged rather than the list price if you routinely discount, or you are measuring a sale that never happens.
Required
Shipping and delivery
Belongs in cost when you pay it and it is not separately recovered. Businesses offering free delivery often forget it is a cost of sale, which quietly removes several points of margin on smaller orders.
Optional
Payment processing fees
Typically 1.5% to 3% of the transaction, taken from every sale. On a thin margin this is not a rounding error: at a 10% margin, a 3% fee takes 30% of the profit.
Optional
Platform or marketplace commission
Where you sell through a marketplace, its cut comes off the price before you see it. Include it as a cost of sale, or calculate on the amount actually settled to you rather than the headline price.
Optional
Your own time, for services
Service businesses often enter zero cost and see a 100% margin, which tells them nothing. Cost the hours at what you would have to pay someone to do the work, and the margin becomes a number you can make decisions with.
Optional
Returns and wastage
If a share of units is returned, spoiled or written off, the ones that sell must carry that cost. A 5% write-off rate means the surviving units need to cover it, which lowers the effective margin across the range.
Optional
Quantity
Optional, and useful for turning a per-unit margin into the money it represents. A 6% margin looks poor until it is 6% of ten thousand units, and a 60% margin on three sales a month is not a business.
Optional
Tax on the sale
Excluded, on both sides. VAT or sales tax you collect passes through you to the tax authority and is not yours to count as revenue at any point.
Optional
Who it helps
Who needs to calculate profit margin?
Freelancers and consultants
Pricing by the hour hides margin completely: with no cost entered, everything looks like 100% profit. Costing your own time at a replacement rate turns a day rate into a number you can compare across clients, and usually explains why some projects feel worse than they look.
Retailers and e-commerce sellers
Costs arrive from a supplier as an invoice and prices go out as a list, which makes markup the natural way to think, and margin the way the accounts will be read. Seeing both at once is the fastest way to stop the two drifting apart across a range.
Agencies and studios
Project profitability lives or dies on what counts as cost. Including subcontractors, licences and the hours actually worked rather than the hours quoted is usually the difference between a healthy-looking margin and a real one.
Wholesalers and distributors
Volume businesses run on thin margins where a point either way is the whole profit. Working in markup while reporting in margin is exactly where that point gets lost, which makes the conversion worth doing explicitly every time.
Anyone quoting a job
A quote is a price decision made under time pressure, often on the phone. Working backwards from the margin you need, rather than forwards from cost plus a habitual percentage, is the difference between winning work and winning work profitably.
Bookkeepers and accountants
Clients routinely report markup as margin without realising the two differ, which makes their forecasts optimistic in a predictable direction. Showing the same sale both ways is usually faster than explaining the formula.
Do it properly
Best practices
Decide which number you are quoting before you quote it
Margin and markup are both legitimate and are never equal. Agreeing internally which one a target percentage refers to costs nothing and prevents the most expensive misunderstanding in pricing, one that only surfaces at year end.
Work backwards from the margin you need
Cost plus a habitual percentage is a markup, and it lands short of the margin you were aiming for. Setting the margin and letting the price follow, using cost ÷ (1 − margin), hits the target directly instead of approximately.
Put every cost of sale in the cost
Shipping, payment fees, marketplace commission, returns and wastage all reduce what you keep, whether or not they appear on the supplier invoice. A margin calculated on purchase price alone is consistently optimistic by several points.
Strip out tax before you calculate
VAT and sales tax pass through you and are not revenue. Leaving them in raises the price side of the equation and flatters the margin. Where you only have the tax-inclusive figure, divide by one plus the rate rather than subtracting the percentage.
Check what a discount really costs before offering one
Discounts come off the price and therefore almost entirely out of profit. At a 33.3% margin, a 10% discount removes 30% of the profit on that sale, so the extra volume has to be substantial before it is worth it.
Cost your own time on service work
Entering zero cost produces a 100% margin and no information. Valuing the hours at what it would cost to have someone else do the work makes service margins comparable with everything else you sell.
Read margin alongside volume
A percentage on its own does not pay anyone. Multiplying by realistic quantities is what turns margin into a decision, and it regularly reverses the ranking of which products are worth keeping.
Avoid these
Common mistakes
Adding your target margin to the cost as a percentage
That is a markup and it always undershoots. Adding 40% to a cost of 100 gives 140, which is a 28.6% margin rather than 40%. The correct price is cost ÷ (1 − margin), which is 166.67: nearly 27 more on every unit.
Reporting markup as if it were margin
Convert before quoting the figure to anyone who will act on it. Margin equals markup ÷ (1 + markup), so a 50% markup is a 33.3% margin. Forecasts built on the wrong one are optimistic by a predictable and growing amount.
Leaving VAT or sales tax in the price
Exclude it from both sides. Tax you collect belongs to the tax authority, and counting it as revenue inflates both the price and the margin. If you only have the gross figure, divide by one plus the rate rather than subtracting the percentage.
Costing only what the supplier invoiced
Include shipping, payment processing, marketplace commission, returns and wastage. These routinely account for several points of margin: on a product carrying a 10% margin, a 3% card fee alone takes 30% of the profit.
Confusing gross margin with what you actually keep
Gross margin is before rent, salaries, software and tax. A business can hold a strong gross margin and still lose money, so treat it as a pricing measure rather than a verdict on profitability.
Discounting without checking the effect on profit
Work out the discounted margin before agreeing to it. Because cost does not move when the price does, a modest discount takes a disproportionate share of the profit, and on a thin margin it can wipe it out entirely.
Chasing a margin percentage that cannot exist
Margin cannot reach 100%: that would mean the item cost you nothing. If a target above about 80% is being discussed, someone is almost certainly thinking in markup, where there is no ceiling at all.
FAQ
Frequently asked questions
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