Profit Margin Calculator

How to use this calculator

Enter your true cost per unit. Product cost, shipping, packaging, payment fees and platform commission, not just the purchase price.
Enter your selling price. The price the customer actually pays.
Read the margin, not the markup. Margin is the number that tells you what share of every sale you keep.
Use the target margin field to work backwards. It gives the minimum price that hits your margin goal.

The formulas

Profit = Price - Cost

Margin % = Profit / Price x 100

Markup % = Profit / Cost x 100

Price for target margin = Cost / (1 - Target margin)

Margin and markup describe the same profit from different bases. That is why a 50 percent markup is only a 33.3 percent margin, and why businesses that price by markup often believe they are more profitable than they are.

Worked example

Cost $30, price $50, 100 units:

Profit per unit: $50 - $30 = $20
Margin: $20 / $50 = 40%
Markup: $20 / $30 = 66.7%
Total revenue $5,000; total profit $2,000
Price for a 50 percent margin: $30 / 0.50 = $60

Note the trap: a 66.7 percent markup sounds far better than a 40 percent margin, but they are the same transaction. If you think in markup you will underprice.

Typical gross margins by business type

Business type	Typical gross margin	Main cost driver
Software / SaaS	70 to 90%	Hosting, support
Professional services	50 to 80%	Labour time
Digital products	85 to 95%	Payment fees only
Specialty retail	40 to 60%	Cost of goods
General retail / ecommerce	25 to 45%	COGS, shipping, returns
Food and beverage	60 to 75%	Ingredients, waste
Wholesale / distribution	10 to 25%	Volume, logistics

Common mistakes

Using markup and calling it margin. Markup is calculated on cost, margin on price. The same profit shows two very different percentages.
Leaving out hidden costs. Payment processing, marketplace commission, returns and packaging all belong in cost.
Ignoring fixed costs. Gross margin is not net profit. Rent, salaries and software come out of gross profit.
Setting one price for every channel. A marketplace sale at 15 percent commission needs a higher list price than a direct sale.
Rounding prices down to look clean. On thin margins a $2 discount on a $20 profit is a 10 percent cut to your income.

Frequently asked questions

What is the difference between margin and markup?

Margin is profit divided by selling price. Markup is profit divided by cost. A 50 percent markup is only a 33.3 percent margin. Confusing the two is the most common pricing error in small business.

What is a good gross margin?

It depends on the industry: services 50 to 80 percent, retail 40 to 60 percent, software 70 to 90 percent, physical goods with fulfilment 20 to 40 percent. Compare against your own category, not against software.

How do I calculate the price for a target margin?

Divide cost by one minus target margin. For a 40 percent margin on a $30 cost, $30 divided by 0.60 equals $50.

Does this include operating expenses?

No, this is gross margin. To get net margin, subtract rent, salaries, marketing and software from gross profit, then divide by revenue.

Why does my margin drop on marketplaces?

Because commission is a cost. A 15 percent fee on a $50 sale removes $7.50, cutting a 40 percent margin to roughly 25 percent. Add the fee to cost for an accurate picture.

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