How to use this profit margin calculator
Pick what you want to solve for, then enter two numbers. The results update as you type.
- Profit margin from price and cost. Enter the selling price (revenue) and what the sale cost you. You get gross profit in dollars, the margin as a percentage of the price, and the markup as a percentage of the cost.
- Selling price for a target margin. Enter your cost and the margin you want to earn. The tool tells you what to charge.
- Maximum cost for a target margin. Enter the price the market will bear and the margin you need. The tool tells you the most you can spend on materials, stock, or a subcontractor.
When you switch modes, the current answer carries over, so the fields keep describing the same sale. Inputs accept dollar signs, commas and spaces, so you can paste figures straight from a spreadsheet. A margin target must be below 100% when you solve for price, because no price produces a 100% margin unless the cost is zero.
The profit margin formula
Profit margin is profit expressed as a percentage of revenue:
Profit margin (%) = (Revenue − Cost) ÷ Revenue × 100
For example, a landscaping job billed at $2,500 with $1,600 in labour and materials has a profit of $900 and a margin of 36%. The same job has a 56.25% markup, because $900 is 56.25% of the $1,600 cost.
To find the price that gives you a target margin, rearrange the formula:
Price = Cost ÷ (1 − Target margin)
A $1,600 job priced for a 40% margin needs to be billed at $1,600 ÷ 0.60 = $2,666.67. To work backwards from a fixed price, multiply instead:
Maximum cost = Price × (1 − Target margin)
A $2,500 job that must keep a 60% margin can cost at most $2,500 × 0.40 = $1,000.
Margin vs. markup: the mistake that quietly costs money
Margin and markup describe the same dollar profit but from different angles, and confusing them is one of the most common pricing errors small businesses make.
| Feature | Margin | Markup |
|---|---|---|
| Based on | Selling price | Cost |
| Formula | Profit ÷ Revenue | Profit ÷ Cost |
| $60 cost, $100 price | 40% | 66.7% |
| To hit "40%" | Charge $100 | Charge $84 |
If you tell a supplier or a spreadsheet to "add 40%" thinking you're getting a 40% margin, you actually end up with a 28.6% margin. On $500,000 of annual sales, that's more than $57,000 of profit you thought you had. Use our markup calculator when you're working from cost, and this page when you're working from price.
The table below converts a target margin into the markup that produces it. The last column is the selling price of an item that costs you $100.
| Target margin | Markup needed | $100 cost sells for |
|---|---|---|
| 10% | 11.11% | $111.11 |
| 15% | 17.65% | $117.65 |
| 20% | 25.00% | $125.00 |
| 25% | 33.33% | $133.33 |
| 30% | 42.86% | $142.86 |
| 35% | 53.85% | $153.85 |
| 40% | 66.67% | $166.67 |
| 50% | 100.00% | $200.00 |
| 60% | 150.00% | $250.00 |
| 70% | 233.33% | $333.33 |
| 75% | 300.00% | $400.00 |
| 80% | 400.00% | $500.00 |
Margin can never reach 100% while the cost is above zero, but markup has no ceiling. That is why markup is always the larger number for the same sale.
Gross margin vs. net margin
The calculator works for either. The difference is entirely in what you count as "cost":
- Gross margin uses only the direct cost of producing what you sold: materials, inventory, and direct labour. It tells you whether your core product or service is priced sensibly.
- Operating margin subtracts operating expenses too: rent, salaries, marketing, software, insurance.
- Net margin subtracts everything, including interest and taxes. It is what's actually left over.
Here is one year for a small coffee roaster that sells to cafés and online:
| Line | Amount | Margin |
|---|---|---|
| Revenue | $400,000 | |
| Cost of goods sold (green coffee, bags, roasting labour, shipping) | −$240,000 | |
| Gross profit | $160,000 | 40.00% |
| Rent | −$36,000 | |
| Salaries (non-production) | −$60,000 | |
| Marketing | −$12,000 | |
| Software, insurance, other overhead | −$16,000 | |
| Operating profit | $36,000 | 9.00% |
| Loan interest | −$6,000 | |
| Income tax | −$8,000 | |
| Net profit | $22,000 | 5.50% |
To reproduce each line in the calculator, keep revenue at $400,000 and enter the total cost down to that line: $240,000 gives 40.00%, $364,000 gives 9.00%, and $378,000 gives 5.50%.
The three figures point to different fixes. A healthy gross margin with a thin net margin usually means overheads are too high for the volume of business. A thin gross margin usually means pricing or supplier costs are the problem, and no amount of overhead trimming will fix it. A monthly profit and loss statement gives you all three numbers in one place.
Comparing your margin with other businesses
There is no single "good" margin. It depends on the business model more than on effort or skill. Resellers of commodity goods, such as grocers and fuel stations, compete on price and live on thin gross margins made up by volume. Service firms and software businesses often have high gross margins because they buy little stock, but they spend heavily on salaries, so their net margin can still be modest. A café and a consultancy with the same net margin can have completely different cost structures.
Better benchmarks than a figure from a blog post:
- Your own history. Compare this year's gross and net margin with last year's, month by month. A falling gross margin is an early warning that supplier prices have risen faster than yours.
- Trade association surveys. Many industry associations publish cost and margin surveys for their members, broken down by business size.
- Your accountant or lender. Both see the books of many similar businesses and can tell you where yours sits.
- Public company filings. Listed companies in your industry report gross and operating margins in their annual reports. They are larger than you, but the gross margin is often a useful reference.
If your margins are below where they should be, the fixes are usually one of three: raise prices, lower cost of goods, or cut the overheads that don't drive sales. Running your numbers through this calculator before and after each change shows you exactly how much each move is worth.
How to raise your margin
Start from a $100 item that costs $60, a 40% margin. Small changes on either side move the margin by different amounts:
| Change | New price | New cost | New margin |
|---|---|---|---|
| None | $100 | $60 | 40.00% |
| Raise price 5% | $105 | $60 | 42.86% |
| Cut cost 5% | $100 | $57 | 43.00% |
| Both | $105 | $57 | 45.71% |
Price increases are the most direct lever, because every extra dollar of price is profit. Cost cuts come from renegotiating with suppliers, buying in larger quantities, reducing waste, or dropping the lowest-margin products. Check each product line separately: a business-wide average hides the lines that lose money.
Discounts work in reverse, and faster than most owners expect. A 10% discount on that $100 item cuts profit from $40 to $30, so you need to sell a third more units just to stand still. The rule is:
Extra sales needed to keep the same gross profit = Discount ÷ (Margin − Discount)
| Discount (at a 40% margin) | Profit per item | Extra unit sales needed |
|---|---|---|
| 5% | $35 | 14.3% |
| 10% | $30 | 33.3% |
| 15% | $25 | 60.0% |
| 20% | $20 | 100.0% |
At a 20% discount you have to double your sales volume to earn the same gross profit as before.
Common mistakes
- Dividing by cost instead of price. That gives markup, not margin. A $60 item sold for $100 has a 66.7% markup and a 40% margin.
- Leaving direct costs out. Card processing fees, packaging, shipping you pay for, and the labour to make or deliver the product all belong in cost of goods. Leave them out and the gross margin looks better than it is.
- Averaging percentages across products. If product A brings in $10,000 at a 60% margin and product B brings in $90,000 at a 20% margin, the business margin is not 40%. Gross profit is $6,000 + $18,000 = $24,000 on $100,000 of revenue, a 24% margin. Always add up the dollars first, then divide.
- Adding the margin to the cost. Pricing a $1,240 job at $1,240 × 1.35 = $1,674 does not give a 35% margin; it gives 25.9%. The right price is $1,240 ÷ 0.65 = $1,907.69, which is what the "selling price" mode returns.
- Treating gross profit as take-home pay. Overheads, loan payments and tax still come out of it.
What this calculator does not do
The calculator works on one price and one cost at a time. It does not:
- allocate overheads to individual products, so it cannot tell you which products cover their share of rent and salaries;
- combine several products into a blended margin (add up revenue and costs first, then enter the totals);
- account for returns, refunds, or discounts unless you enter the net price after them;
- include sales tax or VAT, which should be excluded from both revenue and cost;
- calculate income tax, depreciation, or cash flow timing.
It is an exact arithmetic tool: results are calculated from the figures you type, with dollar amounts rounded to the cent and percentages to two decimal places.
When margin alone isn't enough
Margin tells you profitability per sale but not whether the business pays you. Two other numbers matter alongside it:
- Break-even revenue = Fixed costs ÷ Gross margin. If your fixed costs are $8,000 a month and your gross margin is 40%, you need $20,000 in monthly sales before you earn a dollar.
- Owner's pay. If you're self-employed, remember that a share of your "profit" is also your salary, and it's subject to self-employment tax. A 30% margin can feel much smaller after the IRS takes its share. If you're pricing your own time, the hourly to salary calculator converts between an hourly rate and annual pay.
Once you know your margin and your fixed costs, the business loan calculator can help you check whether new financing is affordable at your current profit level.