What profit margin actually tells you
Margin answers one question: out of every dollar a customer pays, how much is left after the cost of what you sold? A 40% margin means 40 cents of each sales dollar remains to cover rent, software, your own pay and everything else that is not part of the product.
This calculator measures margin on a single item, job or batch using whichever cost you enter. If you enter only direct costs, the answer is a gross margin. To include overhead, interest and taxes across the whole business, use the net profit margin calculator instead.
The formulas
Profit
Profit = Selling price − Cost
Profit margin
Margin % = (Profit ÷ Selling price) × 100
Markup
Markup % = (Profit ÷ Cost) × 100
Both use the same profit. Margin divides by the price and markup divides by the cost, which is why markup is always the larger number when profit is positive.
Worked example
A shop buys a lamp for $42 and sells it for $70.
- Profit: $70 − $42 = $28.00.
- Margin: $28 ÷ $70 = 40%.
- Markup: $28 ÷ $42 = 66.67%.
The same lamp has a 40% margin and a 66.67% markup. Neither figure is wrong; they measure the profit against different bases.
Reading your result
- A margin cannot reach 100% unless the cost is zero. If a target looks impossible, check whether it was really a markup target.
- A negative margin means the price is below cost. That can be deliberate for a loss-leader, but it should never be an accident.
- Compare like with like. A healthy margin depends on your trade. Grocery retail and bespoke consulting run on very different numbers, so your own history and costs are a better yardstick than a general rule of thumb.
- Watch the trend. A margin that slides a point or two each quarter often signals supplier price rises that were not passed on.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit as a percentage of the selling price; markup is profit as a percentage of the cost. A $28 profit on a $70 item with a $42 cost is a 40% margin but a 66.67% markup. The margin to markup calculator converts between them.
Should I include my own labor in the cost?
If your time is a real input to the job, yes. Leaving it out makes a job look more profitable than it is, because the margin then has to pay you as well as cover overhead. Value your time at the rate you would otherwise bill or pay someone else.
Does sales tax affect profit margin?
Normally no. Sales tax you collect on behalf of a government is not your revenue, so enter the price before tax.
Can profit margin be more than 100%?
No, not with a positive cost. Margin is a share of the price, and profit can never exceed the whole price. A figure above 100% is almost certainly a markup.