Margin Calculator – Profit Margin & Markup
Calculate profit margin and markup percentage for pricing decisions
Table of Contents
How to Use
- Enter the cost of your product or service
- Enter the selling price or revenue
- Click calculate to see your profit margin and markup
- Use the results to optimize your pricing strategy
Margin vs Markup: What's the Difference?
While both margin and markup measure profitability, they calculate it differently and serve different purposes in business decisions.
- Profit Margin: Percentage of revenue that is profit. Formula: (Revenue - Cost) / Revenue × 100
- Markup: Percentage added to cost to get selling price. Formula: (Revenue - Cost) / Cost × 100
- A 50% markup results in a 33.3% margin, not 50%
- Margin is always lower than markup for the same transaction
Margin Calculation Formulas
| Metric | Formula | Example |
|---|---|---|
| Profit Margin | (Revenue - Cost) / Revenue × 100 | ($100 - $60) / $100 = 40% |
| Markup | (Revenue - Cost) / Cost × 100 | ($100 - $60) / $60 = 66.7% |
| Selling Price from Margin | Cost / (1 - Margin%) | $60 / (1 - 0.40) = $100 |
| Selling Price from Markup | Cost × (1 + Markup%) | $60 × 1.667 = $100 |
What is a Good Profit Margin?
Healthy profit margins vary significantly by industry:
- Retail: 2-5% net margin is typical
- Software/SaaS: 70-90% gross margin is common
- Manufacturing: 25-35% gross margin
- Professional Services: 15-25% net margin
- Restaurants: 3-9% net margin
- E-commerce: 10-20% gross margin
How to Improve Profit Margins
- Reduce costs through better supplier negotiations
- Increase prices strategically based on value delivered
- Improve operational efficiency to lower overhead
- Focus on higher-margin products or services
- Reduce waste and optimize inventory management
- Automate repetitive tasks to reduce labor costs
Frequently Asked Questions
- What is the difference between gross margin and net margin?
- Gross margin only considers direct costs (cost of goods sold), while net margin accounts for all expenses including operating costs, taxes, and interest. Gross margin shows production efficiency, while net margin shows overall profitability.
- Why is my markup higher than my margin?
- Markup is always higher than margin for the same transaction because they use different denominators. Markup divides profit by cost, while margin divides profit by revenue. Since revenue is always higher than cost (for profitable sales), margin will always be lower.
- How do I convert margin to markup?
- To convert margin to markup: Markup = Margin / (1 - Margin). For example, a 25% margin equals 33.3% markup: 0.25 / (1 - 0.25) = 0.333 or 33.3%.
- Should I price based on margin or markup?
- Both methods can work. Margin-based pricing is useful when you have target profit percentages. Markup-based pricing is simpler when you know your costs and want to add a standard percentage. Many businesses use markup for simplicity but track margin for financial reporting.