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No. 01Profitability

Profit Margin Calculator

Enter what an item costs you and what you sell it for to see your gross profit, profit margin and markup. Sell several products or services? Add each one to see its margin and your blended margin across the mix.

Work out the margin for

What you pay to make or buy one unit.

Use 1 to see per-unit figures.

Results

Gross profit margin

40%

  • Cost
  • Gross profit
Revenue
$100.00
Gross profitPrice minus the direct cost, before rent, wages and other overhead
$40.00
MarkupProfit as a share of cost (margin is a share of price)
66.67%
Show the calculation
  1. Gross profit / unit$100.00 − $60.00= $40.00
  2. Margin$40.00 ÷ $100.00 × 100= 40%
  3. Markup$40.00 ÷ $60.00 × 100= 66.67%

Starting a business? Carry this cost and price into the Business Idea Check. It works out the price that also pays you, the sales you need and the cash to start.

Price needed for a target margin

At your cost of $60.00 per unit. Price = Cost ÷ (1 − target margin).

20% margin

$75.00

25% markup

30% margin

$85.71

42.9% markup

40% margin

$100.00

66.7% markup

50% margin

$120.00

100% markup

60% margin

$150.00

150% markup

70% margin

$200.00

233.3% markup

How it’s calculated

Gross Profit
equals Selling Price − Cost
Profit Margin
equals (Gross Profit ÷ Selling Price) × 100
Markup
equals (Gross Profit ÷ Cost) × 100
Blended Margin
equals (Total Gross Profit ÷ Total Revenue) × 100

Revenue and gross profit are multiplied by the number of units sold. Margin and markup are ratios, so they’re the same whether you sell one unit or a thousand.

With several products or services, the blended margin is total gross profit over total revenue, so items you sell more of count for more. It is not the average of the item margins.

Worked example

A candle maker spends $18 on wax, wicks, jars and labels for each candle, sells them for $45, and sold 200 last month.

  1. Revenue = $45 × 200 = $9,000.00
  2. Gross profit = ($45 − $18) × 200 = $5,400.00
  3. Profit margin = $27 ÷ $45 × 100 = 60%
  4. Markup = $27 ÷ $18 × 100 = 150%

Sixty cents of every sales dollar is gross profit available to cover rent, marketing, the owner’s time and other overhead.

Margin vs. markup

Margin and markup describe the same dollar profit using different bases. Margin compares profit to the selling price; markup compares profit to cost. Because price is always larger than cost when you’re profitable, margin is always the smaller percentage.

What is a good profit margin?

It depends heavily on the industry. Software and services often run high gross margins because there’s little cost per unit; groceries and fuel run thin margins on high volume. The more useful comparison is against your own history and against what your overhead requires: gross profit must cover all operating expenses before there’s any net profit left.

Assumptions and limitations

  • This calculates gross margin: only the direct cost of the item is subtracted. Operating expenses such as rent, salaries and advertising are not included, so net profit margin will be lower.
  • Cost should include everything it takes to get one unit ready to sell — materials, packaging, inbound shipping and direct labor if applicable.
  • When the selling price is $0, margin is undefined (you can’t divide by zero). When cost is $0, markup is undefined. The calculator shows “Undefined” rather than a misleading number.
  • Negative margins mean you are selling below cost.

Results are estimates for information only and are not financial, tax or legal advice. See our disclaimer.