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Profit Margin Calculator

Calculate profit margin and markup for any job in seconds. Enter your costs and sale price to get accurate profitability insights instantly.

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This margin calculator will be your best friend if you want to find out an item's revenue, assuming you know its cost and your desired profit margin percentage. That's not all, though — you can calculate any of the main variables in the sales process: cost of goods sold (how much you paid for the stuff that you sell), profit margin, revenue (how much you sell it for), and profit — from any two of the other values.

In general, your profit margin determines how healthy your company is. With low margins, you're dancing on thin ice, and any change for the worse may result in big trouble. High profit margins mean there's a lot of room for errors and bad luck.

Keep reading to find out how to calculate your profit margin and what the gross margin formula is.

Table of Contents

How to Calculate Profit Margin

To calculate profit margin manually, follow these steps:

  1. Determine your Cost of Goods Sold (COGS) Example: $30

  2. Determine your Revenue (Selling Price) Example: $50

  3. Calculate Gross Profit Revenue − Cost $50 − $30 = $20

  4. Divide Profit by Revenue $20 ÷ $50 = 0.4

  5. Convert to a Percentage 0.4 × 100 = 40% profit margin

This is the standard method for calculating profit margin. You can also skip the math and use our online profit margin calculator for instant results.

Important: Margin is calculated based on revenue, not cost. This is what differentiates margin from markup.

Gross Margin Formula

The standard gross margin formula is:

Gross Margin (%) = (Profit ÷ Revenue) × 100

Since profit is calculated as:

Profit = Revenue − Costs

You can also express margin as:

Margin (%) = (Revenue − Costs) ÷ Revenue × 100

Revenue Formula (Using Margin)

If you know your desired margin and profit:

Revenue = Profit × 100 ÷ Margin

Cost Formula (Using Margin)

To calculate the maximum cost you can afford:

Costs = Revenue − (Margin × Revenue ÷ 100)

This is particularly useful for pricing strategy and supplier negotiations.

Margin vs. Markup

Although often confused, margin and markup are not the same.

  • Profit Margin = Profit ÷ Selling Price
  • Markup = Profit ÷ Cost of Goods Sold

Example:

  • Cost = $30
  • Price = $50
  • Profit = $20

Margin = 40% Markup = 66.7%

Markup is based on cost, while margin is based on revenue. Many pricing errors happen when these two concepts are mixed up.

A Note on Terminology

Terms like profit margin, gross margin, and gross profit margin are often used interchangeably. In practice, definitions may vary depending on whether additional expenses (marketing, logistics, overhead) are included.

For this calculator:

  • "Costs" typically refer to COGS
  • The focus is on gross profit margin

This approach reflects how most users search for and apply profit margin calculations in real-world business scenarios.

Frequently Asked Questions (FAQs)

What's the difference between gross and net profit margin?

  • Gross profit margin measures profit after COGS only.
  • Net profit margin subtracts all expenses (rent, salaries, taxes, marketing).

Net margin shows what actually ends up as profit and is often more relevant to investors.

Can profit margin be too high?

High margins are generally positive, but excessive short-term profit extraction without reinvestment can harm long-term growth. Sustainable businesses reinvest profits to scale operations, improve efficiency, and reduce risk.

What is margin in sales?

Sales margin is the difference between selling price and total costs required to sell the product, expressed as a percentage of revenue. This may include discounts, labor, rent, and operational expenses.

How do I calculate a 20% profit margin?

  1. Convert 20% to decimal → 0.2
  2. Subtract from 1 → 0.8
  3. Divide cost by 0.8

The result is your required selling price.

What is a good profit margin?

It depends on the industry, but as a general benchmark:

  • 5% = low
  • 10% = average
  • 20%+ = strong

New and small businesses often operate with lower margins due to fixed costs and labor intensity.

How do I calculate margin in Excel?

  1. Enter cost in cell A1
  2. Enter revenue in cell B1
  3. Profit: =B1-A1
  4. Margin: =(C1/B1)
  5. Format the result as a percentage

Are margin and profit the same?

No. Profit is an absolute currency value. Margin is a percentage, making it easier to compare performance across products, services, or companies of different sizes.

How do I calculate markup from margin?

  1. Convert margin to decimal
  2. Subtract from 1
  3. Divide 1 by the result
  4. Subtract 1

This gives markup in decimal form. Multiply by 100 for percentage.

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