Profit Margin Calculator guide
Enter what an item costs you and what you sell it for to see gross profit, profit margin, and markup side by side. Or set a target margin and get the exact price to charge.
The three formulas this calculator uses
Gross profit = selling price − cost. Profit margin = gross profit ÷ selling price × 100. Markup = gross profit ÷ cost × 100. All three come from the same two numbers; the only difference is what you divide by.
The target-price section runs the margin formula backwards: price = cost ÷ (1 − target margin). For a 50 percent margin on a $40 cost, that is $40 ÷ 0.5 = $80. It refuses a 100 percent target because the formula would divide by zero. A 100 percent margin means the item cost you nothing.
Margin versus markup: the mistake that eats profits
Most small sellers price by adding a percentage to cost, then report that percentage as their margin. It is not. Add 40 percent to a $12 cost and you charge $16.80. Your profit is $4.80, and $4.80 ÷ $16.80 is a 28.6 percent margin, not 40.
To actually earn 40 percent of every sale, price at $12 ÷ 0.60 = $20. That is a 66.7 percent markup. The gap between those two prices is $3.20 per unit, which on 1,000 units a year is $3,200 you thought you were making.
Quick conversions: a 25 percent margin is a 33.3 percent markup, 33.3 percent margin is 50 percent markup, 50 percent margin is 100 percent markup, and 60 percent margin is 150 percent markup. In general, markup = margin ÷ (1 − margin), and margin = markup ÷ (1 + markup).
Worked example: an Etsy listing
You sell a handmade item for $30 with free shipping. Materials and packaging cost $9.50. On raw cost alone, your margin is $20.50 ÷ $30 = 68.3 percent. Looks great.
Now add Etsy's standard US fees: a $0.20 listing fee, a 6.5 percent transaction fee ($1.95), and payment processing of 3 percent plus $0.25 ($1.15). That is $3.30 in fees. Your real cost is $12.80, profit is $17.20, and margin is 57.3 percent. Enter $12.80 as the cost to see it. Your time, shipping supplies, and any Etsy Ads spend come out of that too.
The lesson: put every per-unit cost into the cost field. Platform fees, card processing, packaging, and inbound freight are all part of what a sale costs you.
How discounts hit margin
Discounts cut profit much harder than they cut price. Take a $100 item that costs $60, a 40 percent margin. Run a 10 percent off sale and the price drops to $90, but profit drops from $40 to $30. That is 25 percent less profit per unit, and the margin falls to 33.3 percent.
To earn the same total profit, you need to sell 40 ÷ 30 = 1.33 times as many units, 33 percent more volume, just to break even on the promotion. Run the numbers here before you launch a sale, and pair it with the break-even calculator if fixed costs are involved.
Gross margin, operating margin, net margin
This tool calculates gross margin when you enter product or service cost. Operating margin also subtracts overhead such as rent, salaries, software, and marketing. Net margin subtracts everything, including interest and income tax. A business can show a 60 percent gross margin and still lose money if overhead is high.
Rough US benchmarks for net margin, which vary by year and source: grocery and supermarkets around 1 to 3 percent, restaurants 3 to 6 percent, general retail 2 to 5 percent, and software often 15 percent or more. NYU Stern professor Aswath Damodaran publishes margins by industry every January if you want current numbers for your sector.
Common mistakes
Forgetting variable costs such as shipping labels and payment fees. Using the list price when most sales happen at a discount. Comparing your markup to a competitor's margin. And pricing to a margin target without checking what customers will actually pay: the formula tells you what you need, not what the market will bear.
How we calculate: sources
Frequently asked questions
How do I calculate profit margin?
Margin = (price − cost) ÷ price × 100. An item that costs $40 and sells for $100 has a $60 profit and a 60% margin.
What is the difference between margin and markup?
Margin divides profit by the selling price. Markup divides profit by the cost. The same $40 cost and $100 price is a 60% margin but a 150% markup. Markup is always the larger number.
How do I price a product for a 40% margin?
Divide cost by (1 − 0.40). A $12 cost needs a $20 price for a 40% margin. Adding 40% to cost ($16.80) only gives a 28.6% margin, a common pricing mistake.
What is a good profit margin?
It depends on the industry. Grocery stores often run 1 to 3% net margins, restaurants about 3 to 6%, while software companies can exceed 20%. For gross margin, many retailers target 25 to 50%.
What is the difference between gross and net profit margin?
Gross margin only subtracts the cost of goods sold. Net margin also subtracts rent, payroll, marketing, interest, and taxes. This calculator gives gross margin when you enter product cost.
Can a profit margin be over 100%?
No. Margin is a share of the selling price, so it can approach but never reach 100% unless the cost is zero. Markup, by contrast, can be 200%, 500%, or more.
Is data uploaded?
Everything runs in your browser. Nothing you enter is uploaded to a server or stored by us.
How do I convert markup to margin?
Margin = markup ÷ (1 + markup). A 100% markup is a 50% margin, and a 50% markup is a 33.3% margin.
Should sales tax be included in the selling price?
No. Sales tax is collected for the state and passed through, so use the pre-tax price. Including it inflates both revenue and margin.