Finance Tools/Profit Margin Calculator
Profit Margin Calculator
Calculate profit margin and cost/selling price
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Result
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Profit Margin Calculator Guide
Calculate and understand your profit margins
What is Profit Margin?
Profit margin measures how much profit a business makes for every dollar of revenue. It's expressed as a percentage and indicates pricing efficiency and overall business health. Higher margins typically mean better profitability and financial stability.
How to Use This Calculator
- Enter the cost price (what you pay)
- Enter the selling price (what customers pay)
- Or enter desired margin to find the selling price
- View gross profit, margin percentage, and markup
Pricing Tips
- Margin and markup are different: 50% markup ≠ 50% margin
- Consider all costs including overhead when setting prices
- Compare margins across products to optimize your mix
Formulas
Margin = ((Revenue - Cost) / Revenue) × 100. Markup = ((Revenue - Cost) / Cost) × 100. Gross Profit = Revenue - Cost.
Frequently Asked Questions
What is the difference between profit margin and markup?
Margin is calculated from the selling price (profit ÷ selling price), while markup is calculated from the cost (profit ÷ cost). A 50% markup doesn't equal 50% margin. Example: cost $60, selling price $100. Markup = ($40÷$60) = 66.7%, but margin = ($40÷$100) = 40%. The same profit has different percentages depending on the base used.
What profit margin should my business aim for?
Healthy margins vary by industry. Grocery stores typically have 1-3% net margins, restaurants 3-9%, software companies 15-25%, and luxury goods 25-65%. Gross margin (before overhead) is usually much higher than net margin (after all expenses). Compare with industry benchmarks for meaningful analysis.
How do I convert between markup and margin?
Margin to Markup: Markup = Margin ÷ (1 - Margin). Markup to Margin: Margin = Markup ÷ (1 + Markup). Examples: 25% margin = 33.3% markup; 50% markup = 33.3% margin; 100% markup = 50% margin. This relationship is why the same numbers mean different things in each context.
Why is gross margin different from net margin?
Gross margin only subtracts direct product costs (COGS—materials, direct labor). Net margin subtracts all expenses including operating costs, overhead, interest, and taxes. A company might have 40% gross margin but only 10% net margin after rent, salaries, marketing, and other expenses are deducted.
How can I improve my profit margins?
Increase margins by: raising prices strategically (if market allows), reducing direct costs through better suppliers or efficiency, improving product mix toward higher-margin items, reducing overhead costs, and increasing sales volume to spread fixed costs. A 2% improvement in margin can significantly impact overall profitability.