Profit Margin Calculator — margin, markup and the gap between them
Enter cost and selling price to get margin, markup and cost ratio, with the difference made explicit.
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Margin and markup describe the same profit against different denominators, and mixing them up is the most expensive arithmetic error in small business pricing.
Margin is profit divided by the selling price. Markup is profit divided by the cost. On the same transaction, markup is always the larger number — which is why a supplier quoting "40% markup" and a buyer hearing "40% margin" are describing quite different deals.
This calculator returns both from the same inputs so the gap is visible.
The 50% that is really 33%
Buy at 100, sell at 150.
Gross profit per unit 50.00
Profit margin 33.33%
Markup on cost 50.00%
Cost as % of price 66.67%Same 50 in profit. Two very different percentages.
Markup: 50 ÷ 100 = 50%.
Margin: 50 ÷ 150 = 33.33%.
Now the failure mode. Suppose you need a 40% margin and you apply a 40% markup instead: 100 becomes 140, and the margin is 40 ÷ 140 = 28.6%. You are 11.4 percentage points short of target on every unit, and nothing in your invoicing will flag it.
To convert properly, price from the margin you want:
price = cost ÷ (1 − margin)
= 100 ÷ (1 − 0.40)
= 100 ÷ 0.60
= 166.67Check: profit is 66.67, and 66.67 ÷ 166.67 = 40%. A 40% margin needs a 66.7% markup.
A rough guide worth memorising: 20% margin ≈ 25% markup, 33% margin ≈ 50% markup, 50% margin ≈ 100% markup.
Gross margin is not net margin
This calculator returns gross margin — revenue minus the direct cost of the thing sold. It excludes rent, salaries, software, advertising, tax and everything else that does not scale per unit.
A business can run a healthy 45% gross margin and still lose money, because gross margin says nothing about whether the volume is sufficient to cover fixed costs. Use the break-even calculator for that side of the question.
Discounts cost more margin than they look like
At a 30% margin, a 10% discount does not remove 10% of your profit. It removes a third of it.
Sell at 100 with a 70 cost: profit 30, margin 30%.
Discount to 90: profit 20, margin 22.2%.
A tenth off the price took a third off the profit. The lower your margin, the more violent the effect — at 15% margin, a 10% discount removes two thirds of it.
The corresponding volume question is rarely asked: to earn the same total profit after that discount, you need to sell 50% more units.
Margins by sector, roughly
Context for whether a number is reasonable:
- Grocery retail: 2–5% net, low margin and high turnover
- General retail: 25–50% gross
- Restaurants: 60–70% gross on food, much higher on drinks
- Web hosting: 60–80% gross on shared, thinner on dedicated
- Software: 70–90% gross
- Professional services: 30–50% after direct labour
These are broad. What matters more is the trend in your own figures over time.
Price on value, not cost
Cost-plus pricing is simple and often leaves money on the table. It sets your price by your supplier's efficiency rather than by what the customer gains.
Use this calculator to establish the floor — below which you should not go — then price against value, competition and positioning. The floor is arithmetic; the price is a decision.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit divided by the selling price; markup is profit divided by the cost. Both describe the same profit against different denominators, so markup is always the larger figure. A 50% markup is a 33.3% margin.
How do I convert a target margin into a price?
Divide the cost by one minus the margin as a decimal. For a 40% margin on a cost of 100: 100 divided by 0.60 gives 166.67. Applying a 40% markup instead would give 140 and a margin of only 28.6%.
Is this gross or net margin?
Gross. It counts only the direct cost of the item sold and excludes rent, salaries, software, advertising and tax. A healthy gross margin does not guarantee profitability — that depends on whether volume covers your fixed costs.
Why does a small discount hurt so much?
Because the discount comes entirely out of profit, not out of cost. At a 30% margin, a 10% price cut removes a third of your profit per unit. At a 15% margin it removes two thirds. To earn the same total after a discount, you need substantially higher volume.
What margin should I aim for?
It varies enormously by sector — grocery runs on a few percent net, software on 70 to 90 percent gross. More useful than any benchmark is the trend in your own numbers and whether your gross margin covers fixed costs at realistic volume.
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