Know what you keep from every sale
Revenue feels good; margin is what pays the bills. The profit margin is the share of each sale you keep after the direct cost of what you sold. A product that sells for 30 and costs 18 to make leaves 12, and that 12 is 40% of the price.
This calculator gives you profit, margin and markup from a cost and a price. Flip it round and it tells you the price to charge for the margin you are aiming at, which is the more useful question when you are setting prices for a new product or a quote.
How to use it
- Choose Margin from cost and price, or Price for a target margin.
- Enter your cost. Use the direct cost of one unit or one job: materials, stock, the hours of outside help it took.
- Enter the selling price, or the margin you want.
- Read the margin, the profit in money and the markup. If the price is below the cost, the answer shows the loss instead.
Margin and markup formulas
profit = price − cost
margin = profit ÷ price × 100
markup = profit ÷ cost × 100
price for a margin = cost ÷ (1 − margin ÷ 100)Margin and markup use the same profit but divide by different numbers. Margin divides by the price, so it tells you how much of each sale you keep. Markup divides by the cost, so it tells you how much you added on top. The same item has a 40% margin and a 66.67% markup, and both are correct.
Worked example: a product that costs 18 and sells for 30
- Profit: $30 − $18 = $12.00
- Margin: $12 ÷ $30 × 100 = 40%
- Markup: $12 ÷ $18 × 100 = 66.67%
So each sale keeps 40% of the price. Now say you want a 50% margin on the same item. Choose Price for a target margin, enter 18 and 50, and the price comes out at $36: $18 ÷ (1 − 0.5). Check it: $18 profit on a $36 price is 50%.
Markup needed for a margin
| Margin | Markup on cost | Price for a cost of 100 |
|---|---|---|
| 10% | 11.1% | 111.11 |
| 20% | 25% | 125 |
| 30% | 42.9% | 142.86 |
| 40% | 66.7% | 166.67 |
| 50% | 100% | 200 |
| 60% | 150% | 250 |
Notice how quickly markup grows. Doubling your cost gives you a 50% margin, not 100%. A margin can never reach 100%, because that would mean the item cost nothing. The markup calculator works from the other direction.
Mistakes that shrink margins
- Pricing with a markup and quoting it as a margin. Adding 30% to cost gives a margin of 23%, not 30%.
- Leaving costs out. For a service, count the time of anyone you pay, and any software or materials used on the job.
- Giving a discount without checking the margin. A 20% discount on a 40% margin wipes out half your profit.
- Mixing gross and net margin. This page shows gross margin on one item or job. Net margin takes off rent, software, insurance and everything else that keeps the business going.
Frequently asked questions
How do I calculate profit margin?
Take the cost from the selling price to get the profit, then divide the profit by the price and multiply by 100. An item that costs 45 and sells for 60 makes 15 profit, and 15 ÷ 60 × 100 is a 25% margin. Enter the cost and price above and the calculator shows the margin, the profit and the markup together.
What is the difference between margin and markup?
Both start from the same profit. Margin divides it by the selling price; markup divides it by the cost. Buying at 50 and selling at 75 gives a 33.3% margin and a 50% markup. Margin tells you what share of revenue you keep, which is why accountants use it; markup is handy when you set prices from cost.
How do I set a price to get a certain margin?
Divide the cost by 1 minus the margin as a decimal. For a 35% margin on something that costs 26, the price is 26 ÷ 0.65 = 40. Choose Price for a target margin and the calculator does this for you, then checks the result by working the margin back out from the price.
What is a good profit margin?
It depends heavily on the trade. Shops selling physical products often run gross margins of 20% to 50%, while services and software can run much higher because there is little cost per sale. Compare yourself with similar businesses, and remember that gross margin has to cover every overhead before anything is left.
What is gross profit?
Gross profit is revenue minus the direct cost of what you sold, before overheads like rent, software and wages for admin. If you sold 10,000 of products that cost you 6,000, gross profit is 4,000 and the gross margin is 40%. Net profit is what remains after every other cost too.
Related calculators
Put your prices into a quote
Once your prices hold a healthy margin, send them properly. The free quote generator turns them into a PDF quote, and CloveDesk keeps quotes, e-signatures, invoices and files for each client in one place.
Last updated: