How profit margin is calculated
- Profit = selling price − cost. Sell at $100 something that cost you $60 and you keep $40.
- Margin % = profit ÷ selling price × 100. That $40 profit is 40% of the $100 price — margin measures profit as a share of what the customer pays.
- Markup % = profit ÷ cost × 100. The same $40 profit is 66.7% of the $60 cost. Markup and margin are two views of the same money.
Working backwards from a target margin instead? Set your selling price precisely with the markup calculator, then bill the client with the invoice generator.
FAQ
What is the difference between margin and markup?
Margin divides profit by the selling price; markup divides it by cost. A $60 item selling for $100 has a 40% margin but a 66.7% markup — identical profit, different bases. Mixing them up is the most common pricing mistake in small business.
What is a good profit margin?
Industry-dependent. Grocery and general retail often run 20–30% gross margins, consultancies and agencies commonly exceed 50%, and software gross margins can pass 70%. Benchmark against your own sector, not a universal target.
Can margin exceed 100%?
Never — profit cannot exceed the entire selling price, so margin tops out at 100%. Markup has no ceiling because it is measured against cost.
Is margin the same as profit?
Profit is the absolute dollars left after costs; margin expresses those dollars as a percentage of revenue. Two businesses can both earn $40,000 profit, but the one on $100,000 revenue (40% margin) is structurally healthier than the one on $500,000 (8%).
Gross margin vs net margin?
Gross margin counts only the direct cost of the goods or service. Net margin also subtracts rent, salaries, software, taxes and every other operating cost. This calculator works at the gross level — net margin needs your full expense picture.
How do I price for a target margin?
Divide cost by (1 − target margin). To hold a 40% margin on a $60 cost: $60 ÷ 0.60 = $100 selling price. Every extra point of margin raises the required price faster as you approach 100%.
Why did my margin shrink when I offered a discount?
Because the discount comes straight off the profit. Cutting 10% off a $100 item with a 40% margin leaves $30 profit on a $90 price — a 33.3% margin. Model promotions with the discount calculator before announcing them.