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Profit Margin Calculator
Gross margin is the share of the selling price you keep after paying for the item itself. Use it to check a price, or work backward from the margin you want.
Result
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For information only. Results are estimates based on the numbers you enter and the formula shown below. They are not financial, tax, legal or investment advice and do not replace a qualified professional or the official figures from your lender, employer or provider.
How to use this calculator
- Choose whether you know the selling price or the margin you are aiming for.
- Enter the cost of the item — what you paid for it or what it cost to make (cost of goods sold).
- Enter the price or the target margin. Results update as you type.
The formula
Margin is measured against the price. Markup is the same profit measured against the cost, so markup is always the larger number. The IRS describes gross profit as receipts minus the cost of goods sold.
Worked example
An item that costs $60 and sells for $100
- Gross profit = 100 − 60 = $40.
- Margin = 40 ÷ 100 × 100 = 40%.
- The same $40 against cost is a markup of 40 ÷ 60 × 100 = 66.67%.
- Target margin instead: for a 25% margin on a $75 cost, price = 75 ÷ (1 − 0.25) = $100.
A common mistake is adding 25% to cost ($93.75), which gives only a 20% margin.
Margin and markup side by side
| Markup on cost | Gross margin |
|---|---|
| 25% | 20.00% |
| 50% | 33.33% |
| 66.67% | 40.00% |
| 100% | 50.00% |
| 200% | 66.67% |
Frequently asked questions
What is a good profit margin?
It depends heavily on the industry, volume and overhead. Grocery stores run on thin margins, while software and services can be much higher. Compare with businesses like yours rather than a single rule.
What is the difference between gross margin and net margin?
Gross margin only subtracts the cost of the goods sold. Net margin also subtracts rent, wages, marketing, taxes and every other expense, so it is lower.
Can a margin be 100% or more?
No. A 100% margin would mean the item cost nothing. Markup has no upper limit, but margin always stays below 100%.
Should cost include shipping and fees?
For a realistic per-unit margin, include the costs you pay for each sale: product cost, inbound shipping, packaging and marketplace or payment fees.
How do I convert markup to margin?
Margin = markup ÷ (100 + markup) × 100. A 50% markup is a 33.33% margin.
Sources
- IRS Publication 334, Tax Guide for Small Business (gross profit)
- U.S. Small Business Administration — Calculate your startup costs (break-even and pricing)