How to use the profit margin calculator
- Pick what to work out: profit and margin, a price from a target margin or markup, the most you can pay at a set price, or what a discount costs you.
- Enter your numbers. Results update as you type. Cost can be per unit, job or hour, as long as the price covers the same thing.
- Add fees, tax and quantity if they apply, to see the margin you actually keep and totals for a batch.
- Copy link to share or bookmark the exact calculation.
Margin vs markup: the difference that costs people money
Margin and markup describe the same profit from two directions. Margin compares it to the selling price; markup compares it to the cost. Because the price is bigger than the cost whenever you make money, markup is always the larger percentage, and mixing them up is a classic pricing mistake.
Profit = Selling price − Cost
Margin % = Profit ÷ Selling price × 100
Markup % = Profit ÷ Cost × 100
Worked example
You buy a product for $45 and sell it for $75. Profit is $30. Margin is $30 ÷ $75 = 40%. Markup is $30 ÷ $45 = 66.7%. Same sale, two very different percentages, so when someone quotes one, ask which they mean.
Setting a price from a target margin
Selling price = Cost ÷ (1 − Margin)
To make a 40% margin on a $45 cost: $45 ÷ 0.60 = $75. The tempting shortcut is to add 40% to the cost, which gives $63. That is a 40% markup, and the margin at $63 is only $18 ÷ $63 = 28.6%. A correct selling price calculator divides; it doesn't add.
Converting between margin and markup
Markup = Margin ÷ (1 − Margin)
Margin = Markup ÷ (1 + Markup)
Use decimals: a 25% margin is 0.25 ÷ 0.75 = a 33.3% markup, and a 100% markup (doubling the cost) is a 50% margin. The conversion table above lists common pairs with prices for your cost.
Fees and sales tax
Processor and marketplace fees grow with the price, so they come straight off your margin. With no sales tax, the price that hits a target margin after fees is:
Selling price = (Cost + Fixed fee) ÷ (1 − Margin − Fee %)
With a $45 cost, a 40% target and a 3% fee: $45 ÷ 0.57 = $78.95. Sales tax and VAT are collected for the government, so margin is always worked out on the price before tax. The calculator handles tax-inclusive and tax-exclusive prices, and applies percentage fees to the full amount the customer pays, as card processors typically do.
What is a good profit margin?
There is no single good number. It depends on your industry, your volume and which margin you mean. A high-volume shop with little hands-on work per sale can live on thin margins. Expertise, custom work and small runs need much higher ones, because each sale carries more time and risk.
Gross margin takes only direct costs off the price: product, materials, subcontractors, fees. Net margin also takes off rent, software, insurance, marketing and tax. Used per sale, this tool is a gross margin calculator, and a healthy gross margin is one that pays all your overheads and still leaves a profit.
To set a target, check that a typical month's gross profit covers your monthly overheads with room to spare; the break-even calculator does this for you. For an outside benchmark, use figures from a trade association or industry body for your sector.
Margin for freelancers and service businesses
If you sell your time, "cost" needs some thought.
- Decide whether your own time is a cost. Count your hours at a base wage and the margin is what the business earns on top of paying you. Leave your time out and the margin must also cover your pay, so it should look high. That is not overcharging.
- Watch subcontractor rates. Pay a subcontractor $50 an hour and bill $75, and you have a 50% markup but only a 33% margin, which must cover project management, late-payment risk and the time spent winning the work.
- Mark up pass-through costs such as hosting, licences or printing you buy for a client, to cover the admin and the cash you front. Say so in your quote.
- Include payment fees if clients pay by card or through a platform.
How discounts eat your margin
A discount comes entirely out of profit, because your cost doesn't fall with the price. Take the $45 cost and $75 price: $30 profit, a 40% margin. A 10% discount makes the price $67.50 and the profit $22.50, so you must sell a third more to earn the same total. A 20% discount halves the profit to $15, so you must sell twice as many.
Extra sales needed = Discount ÷ (Margin − Discount)
| Margin before discount | 5% off | 10% off | 20% off |
|---|---|---|---|
| 20% | +33% | +100% | No profit left |
| 30% | +20% | +50% | +200% |
| 40% | +14% | +33% | +100% |
| 50% | +11% | +25% | +67% |
| 60% | +9% | +20% | +50% |
The lower your margin, the more dangerous a discount. Try cheaper options first: a bundle with a low-cost extra, a bonus instead of a lower price, or for client work, a smaller scope at the same rate. The discount table above shows these figures for your own numbers.
For general information only, not financial or tax advice. Check tax rates and rules for your country and year.
Frequently asked questions
What is the difference between profit margin and markup?
Both use the same profit figure, but margin divides it by the selling price and markup divides it by the cost. A product that costs $60 and sells for $100 has a $40 profit, a 40% margin and a 66.7% markup. When you make a profit, the markup is always the bigger number.
How do I calculate a selling price from cost and margin?
Divide the cost by one minus the margin written as a decimal. For a 40% margin on a $45 cost, that is $45 ÷ 0.60 = $75. Adding 40% to the cost gives $63 instead, which is only a 28.6% margin.
Can a profit margin be 100% or more?
No, not while you have any cost. Margin is profit as a share of the price, and profit can never be bigger than the price, so margin always stays below 100%. Markup has no upper limit: a 200% markup simply means the price is three times the cost.
What markup do I need for a 50% margin?
A 100% markup, which means doubling your cost. For other targets use Markup = Margin ÷ (1 − Margin): a 30% margin needs a 42.9% markup, and a 60% margin needs a 150% markup.
Is gross margin the same as profit margin?
Not quite. Gross margin only subtracts the direct cost of what you sold. Net profit margin also subtracts overheads such as rent, software, insurance and tax. This calculator works per unit or per job, so its result is a gross margin unless you build overheads into the cost.
Should I include VAT or sales tax when calculating margin?
No. Tax you collect belongs to the tax authority, so work out margin on the price excluding tax. If your prices include tax, open Fees, tax and quantity, enter the rate and tick My prices include tax.
How much more do I need to sell after a discount?
Divide the discount by your margin minus the discount. At a 40% margin, a 10% discount needs 0.10 ÷ 0.30 = 33% more sales to earn the same profit, and a 20% discount needs twice as many sales. If the discount is as big as your margin, no amount of extra sales will make it up.
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