About the Profit Margin Calculator
This profit margin calculator takes a cost price and a selling price and returns the three numbers a business runs on: gross profit per unit, profit margin as a share of revenue, and markup as a share of cost. Those last two are constantly confused, and the confusion is expensive — a 50% markup is only a 33.3% margin. Enter a units-sold figure to scale everything to a batch or a month, and set a target margin to have the calculator solve backwards for the selling price you would need to charge.
How to use the Profit Margin Calculator
- 1
Enter the Cost price — what the unit costs you to buy or make, including landed costs.
- 2
Enter the Selling price you charge or plan to charge, excluding sales tax.
- 3
Optionally enter a Target margin percentage to find the price needed to achieve it.
- 4
Enter Units sold to scale revenue, cost and profit across a batch or period.
- 5
Compare the per-unit margin and markup figures, and the totals underneath.
What people use it for
Pricing a new product line
Enter the landed cost and a target margin, and the calculator returns the price. A 600 cost at a 40% target margin needs a 1,000 ticket price, not 840.
Checking whether a discount is survivable
At a 40% margin, a 20% discount removes half your gross profit. Rerun the numbers at the sale price before agreeing to a promotion.
Quoting for freelance or agency work
Treat your delivery cost as the cost price. The margin figure shows whether the quote leaves enough to cover overheads and non-billable time.
Margin versus markup, and how to convert between them
Both describe the same profit, but they divide it by different things. Margin is profit as a percentage of the selling price: (price − cost) ÷ price × 100. Markup is profit as a percentage of the cost: (price − cost) ÷ cost × 100. Buy at 100 and sell at 150 and you have a 50% markup but a 33.3% margin, because 50 is half of the cost yet only a third of the revenue. Markup is always the larger number. To convert markup to margin, use margin = markup ÷ (100 + markup) × 100; to go the other way, markup = margin ÷ (100 − margin) × 100. Some useful pairs: 25% markup is a 20% margin, 100% markup is a 50% margin, and a 50% margin requires doubling the cost. The mistake that hurts is applying a markup percentage while believing it is a margin. A retailer wanting 40% margin who adds 40% to cost actually achieves 28.6%, quietly losing over a quarter of the expected gross profit on every sale.
Pricing for a target margin, and what gross margin excludes
To hit a target margin, divide the cost by (1 − target ÷ 100). A cost of 600 at a 40% target gives 600 ÷ 0.6 = 1,000. This is the calculation the target margin field performs, and it is the only correct way round; adding the target percentage to the cost always undershoots. Note that the target must be below 100%, since no finite price yields a 100% margin on a non-zero cost. Everything reported here is gross margin, meaning it accounts only for the direct cost of the goods or service. It excludes rent, salaries, marketing, payment processing fees, returns, shrinkage and tax, all of which come out of that gross profit before anything reaches the bottom line. That is why healthy gross margins vary so widely by sector: supermarkets often operate on gross margins in the low twenties and net margins of one to three percent, restaurants target roughly 60 to 70% gross on food, and software frequently exceeds 75% gross. Compare against businesses in your own sector rather than against a universal benchmark, and treat these figures as management estimates rather than accounting advice.
Tips
- Include every landed cost — shipping, duty, packaging and payment fees — in the cost price, or your margin is fiction.
- Work out how many extra units a discount must sell to break even: at a 40% margin, a 10% price cut needs a 33% volume increase.
- Track margin percentage rather than absolute profit when comparing products, since it is what scales.