In Short
Gross profit margin is profit divided by the selling price: (price − cost) ÷ price. Markup is profit divided by the cost: (price − cost) ÷ cost. A product that costs $60 and sells for $100 has a 40% margin and a 66.7% markup. To hit a target margin, price at cost ÷ (1 − target margin).
How to Use the Profit Margin Calculator
- Enter your cost per unit: what one item costs you to make or buy.
- Enter your selling price: what one customer pays.
- Optionally set a target margin to see the price that reaches it.
- Or tap Say It All and describe it: “It costs me 40 dollars and I sell it for 95.”
The Formula
Margin and markup use the same profit but divide by different numbers, which is why a 50% markup is only a 33.3% margin.
- Gross profit = price − cost
- Gross margin = (price − cost) ÷ price
- Markup = (price − cost) ÷ cost
- Price for a target margin = cost ÷ (1 − target margin)
Worked Examples
| Scenario | Inputs | Result |
|---|---|---|
| Retail product | Cost $60, price $100 | Profit $40 · margin 40% · markup 66.7% |
| Coffee drink | Cost $1.20, price $5.00 | Profit $3.80 · margin 76% · markup 316.7% |
| Price for a 50% margin | Cost $45, target margin 50% | Price $90.00 |
| Selling below cost | Cost $30, price $25 | Loss of $5 per unit · margin −20% |
Illustrative examples, not projections. Figures use the tax year shown and the assumptions above.
What Is the Difference Between Margin and Markup?
Both measure the same profit. Margin compares it to the price the customer pays, so it can never reach 100%. Markup compares it to your cost, so it can be any size. Pricing with a markup when you meant a margin is one of the most common reasons a business earns less than it planned.
If your supplier quotes a “50% markup” and your plan assumes a 50% margin, you'll be 16.7 points short: a 50% markup is a 33.3% margin.
What Is a Good Profit Margin for a Small Business?
It depends on the industry and on your overhead. A gross margin has to cover rent, payroll, software, marketing and taxes before anything is left as profit. Compare your gross margin with your fixed costs: the Break-Even Calculator shows how many sales your margin needs to cover them.
Watching money in and money out closely is how a business keeps a sustainable balance between profit and loss [1].
Frequently Asked Questions
How do I calculate profit margin?
Subtract the cost from the selling price to get gross profit, then divide by the selling price. A $100 sale with a $60 cost has a $40 profit and a 40% gross margin.
How do I convert markup to margin?
Margin = markup ÷ (1 + markup). A 50% markup is 0.5 ÷ 1.5 = 33.3% margin; a 100% markup is a 50% margin.
What price do I need for a 40% margin?
Divide your cost by (1 − 0.40). A product that costs $30 needs a price of $50 for a 40% gross margin.
Is gross margin the same as net margin?
No. Gross margin only subtracts the cost of the product. Net margin subtracts every expense, including overhead and taxes, so it's always lower.
Sources
- Manage your finances — U.S. Small Business Administration
Official sources only: the IRS, SSA, BLS and other government agencies. Read how Zentavos researches.