Free tool
Margin calculator
Enter cost and price to get gross profit, margin and markup, or enter cost and a target margin to solve for price.
Your numbers
Estimated margin
40%
- Cost
- $30
- Price
- $50
- Profit
- $20
- Markup
- 66.67%
Margin divides profit by price; markup divides the same profit by cost, which is why the two percentages differ.
The formula
Profit = price − cost
Margin = profit ÷ price
Markup = profit ÷ cost
Price = cost ÷ (1 − margin)
- Cost
- What the item costs you.
- Price
- What you sell it for, entered here as revenue.
- Profit
- Price minus cost, in dollars.
- Margin
- Profit as a percentage of price. The standard reading of "margin".
- Markup
- Profit as a percentage of cost. The same profit dollar, a different denominator, and always a bigger percentage than margin when there is a profit.
Worked example
- An item costs $30 and sells for $50, so profit is $50 − $30 = $20.
- Margin divides profit by the selling price: $20 ÷ $50 = 40%.
- Markup divides the same profit by cost instead: $20 ÷ $30 = 66.67%, a different number from the same sale.
- Working the other way, a 40% target margin on a $30 cost needs a price of $30 ÷ (1 − 0.4) = $50.
When it applies
- Per-unit or per-order profitability where cost and price are both known and stable enough to check as a set.
- Comparing pricing across SKUs, channels or over time using margin and markup on a consistent basis.
- Setting a price from a target margin when cost is known and the price is not yet fixed.
When it breaks down
- As a profitability measure if fees, shipping, returns or discounts are left out of cost. That is where landed cost belongs.
- As a business-wide profitability figure. Product margin is not net margin, which nets out operating expenses below gross profit.
- When margin and markup are used interchangeably. The same profit dollar reads as a different percentage of cost than of price, and mixing the two misprices the next item.
Common mistakes
Pricing at cost × (1 + margin %)
That formula computes markup, not margin. A target 40% margin needs price = cost ÷ (1 − 0.40), not cost × 1.40, or the realized margin comes in short.
Leaving landed costs out of cost
Freight, duty and other landed costs belong in cost before margin is calculated. Leaving them out overstates margin on every imported or freight-heavy item.
Confusing gross margin with net margin
Gross margin is price minus the direct cost of the item. Net margin also nets out operating expenses. A healthy gross margin can still sit under a thin or negative net margin.
Questions
What is a good profit margin?
It depends heavily on the industry, the cost structure behind the item, and how the business defines cost in the first place. Compare a margin against the same category and against your own history rather than a single universal target, and make sure landed cost is fully in the cost figure before judging the result.
What is the profit margin formula?
Margin = (price − cost) ÷ price, expressed as a percentage. Cost $30 and price $50 give a 40% margin.
What is the difference between profit margin and markup?
Margin divides profit by price; markup divides the same profit by cost. On a $30 cost and $50 price, that is a 40% margin but a 66.7% markup: the same $20 of profit, read against two different bases.
Gross margin vs profit margin?
"Gross margin" and "profit margin" are usually the same ratio, (price − cost) ÷ price, with gross margin the more precise term when net margin, which also deducts operating expenses, is in the same conversation.
Why is profit margin different from markup?
Because they divide the same profit dollar by different bases: margin by price, markup by cost. Price is always larger than cost when there is a profit, so margin is always a smaller percentage than markup on the same sale.
Related
Published by Skuvelo. Results are estimates computed from the figures you enter, not a reading of your own sales or stock.
A calculator answers once. Skuvelo keeps answering.
This tool computes one number from what you type. Skuvelo computes it continuously, for every SKU, from your own sales and stock.