Profit Margin & Markup Calculator

Margin and markup get confused constantly, and the mistake costs money. Margin is profit as a share of the selling price; markup is profit as a share of your cost. A 50 percent markup is only a 33 percent margin. This calculator works out both from your cost and price, or finds the price you need to hit the margin or markup you want.

How to use it

1. Choose whether you know the price, a target margin, or a target markup.
2. Enter your cost.
3. Enter the selling price or the percentage.
4. Read the price, profit, margin and markup.

When it helps

• Pricing a product so it covers its costs and earns a profit.
• Checking the margin on a price you already charge.
• Converting between markup and margin.
• Working out how far you can discount before losing money.

Good to know

• Margin can never reach 100 percent, since that would mean a cost of zero.
• Include shipping, packaging and payment fees in your cost, or your real margin will be lower than shown.
• Work with prices before tax.

Margin and markup formulas

Margin equals profit divided by selling price. Markup equals profit divided by cost. For a product that costs 40 and sells for 65, profit is 25, margin is 25 divided by 65, or 38.5 percent, and markup is 25 divided by 40, or 62.5 percent.

To find a price from a target margin, divide the cost by one minus the margin: 40 divided by 0.7 gives 57.14 for a 30 percent margin. From a markup, multiply the cost by one plus the markup.

Worked example: pricing a product

You make candles costing 1,800 each including wax, jar, wick and packaging. You want a 40 percent margin. Divide 1,800 by 0.6 to get a price of 3,000. Profit is 1,200 per candle, and the markup works out to 66.7 percent.

Then check the market: if similar candles sell at 2,500, you'll need to cut costs or accept a lower margin.

Gross, operating and net margins

This tool calculates product-level margin, usually called gross margin. A business also has operating costs such as rent and salaries, and tax, so its net margin is lower. Retail gross margins of 30 to 50 percent are common, but net margins are often in single digits.

Know your costs before choosing a price. Underpricing is one of the most common reasons small businesses struggle.

Discounts and margins

Discounting hurts more than most people expect. If your margin is 30 percent and you offer 10 percent off, your profit per unit drops by a third, and you need to sell about 50 percent more to earn the same total profit.

Before running a sale, calculate the margin at the sale price and decide how many extra sales you need.

Questions