How to calculate profit margin
- Enter what an item costs you and what you sell it for. The gross margin, markup and profit per unit appear instantly.
- Need a price instead? Choose Cost & margin and type the margin you want, for example 40%, to get the selling price. Price & margin works out the most you can pay for stock.
- Add the number of units to see total revenue and profit, then share or save the result.
Margin versus markup
Gross margin is profit divided by the selling price: buy for 60, sell for 100, and the profit of 40 is a 40% margin. Markup is profit divided by the cost: the same 40 profit on a 60 cost is a 66.7% markup. Mixing them up is one of the most common pricing mistakes. If you want a 40% margin and add 40% to the cost, you charge 84 instead of 100 and your real margin is only 28.6%.
The formulas are: margin = (price − cost) ÷ price, and price = cost ÷ (1 − margin). Margins can never reach 100% unless the cost is zero, while markups can be any size. Typical gross margins vary widely by industry: grocery retail runs on 25–30%, restaurants on about 60–70% on food, and software often above 80%. Remember that gross margin only covers the direct cost of the product; rent, wages, marketing and other overheads still have to come out of it, so net profit is lower. Amounts are in whatever currency you use, and everything is calculated in your browser.
What is a good profit margin?
It depends on the industry. As a rough guide, a 10% net margin is healthy for most small businesses, and gross margins of 50% or more are common in retail of non-food goods.
How do I add a 30% margin to a cost?
Divide the cost by 0.7. A cost of 70 becomes a price of 100. Do not multiply by 1.3, which is a 30% markup.
Should I include VAT in the price?
No. Use prices and costs excluding VAT or sales tax, since the tax is passed on to the government.