Profit Margin Calculator
Two questions, two tools. What margin am I actually making? And what do I need to charge to hit the margin I want?
What Margin Am I Making?
Result
What Should I Charge?
Result
Margin and Markup, Precisely
Margin
Profit as a share of the selling price. margin = (price − cost) ÷ price. A 20% margin on a $125 price is $25 of profit.
Markup
Profit as a share of the cost. markup = (price − cost) ÷ cost. The same $25 profit on a $100 cost is a 25% markup.
Converting between them
margin = markup ÷ (1 + markup)markup = margin ÷ (1 − margin)
Both describe one price. Neither is more correct.
Why markup is always bigger
It is a percentage of cost, and cost is always smaller than price. The two only coincide when profit is zero.
Worked Examples
Cost $100, selling price $125. Profit is $25. As a share of the price that is 25 ÷ 125 = 20% margin. As a share of the cost it is 25 ÷ 100 = 25% markup. Both are already filled in above.
Cost $18.60, selling price $24.00. Profit is $5.40. Margin is 5.40 ÷ 24.00 = 22.5%. Markup is 5.40 ÷ 18.60 = 29.0%. Quote "22.5%" to someone who thinks in markup and they will hear a smaller number than you meant.
Cost $100, target 30% margin. The price is 100 ÷ 0.70 = $142.86, not $130. Adding 30% to cost gives only a 23.1% margin. This is the single most common pricing error, and it costs 6.9 percentage points of margin every time it is made.
The Discount Trap
Margin is the number that moves when you negotiate, and it moves faster than the discount. Take cost $100 and a price of $125 — a comfortable 20% margin. The buyer asks for 10% off.
| Before | After 10% off | |
|---|---|---|
| Selling price | $125.00 | $112.50 |
| Profit per unit | $25.00 | $12.50 |
| Gross margin | 20.0% | 11.1% |
| Units needed to earn $10,000 gross profit | 400 | 800 |
A 10% discount on the price cut the profit per unit in half and the margin from 20.0% to 11.1% — a 44.4% fall in the margin rate itself. To earn the same gross profit you would have to sell twice as many units. That asymmetry is why export negotiations over price are really negotiations over volume, and why it is worth checking the margin the discounted price delivers before agreeing to it. Enter the discounted price in the first tool above and read the gross margin row.
Three Mistakes This Calculator Prevents
- Adding the margin to the cost. Cost × 1.30 is a 30% markup, not a 30% margin. Use the second tool with "Margin" selected to get the right price.
- Comparing your margin with someone else's markup. A distributor who says "I work on 30%" may mean 30% markup — a 23.1% margin. Always ask which basis.
- Discounting by the margin percentage. Giving away "10% of the margin" is not the same as a 10% price cut, and neither is small. Read the resulting margin, not the discount.
Where This Fits
- Export price calculator — the same margin and markup logic applied to a whole export order, with origin costs included.
- How to calculate an FOB price — why the margin sits on top of the FOB cost, not the goods cost.
- FOB price from EXW — the error that leaves a 15% margin delivering only 12.1%.
- CIF calculator — margins applied on a price that already includes freight and insurance.
Frequently Asked Questions
What is the difference between margin and markup?
Margin is profit as a percentage of the selling price; markup is profit as a percentage of the cost. The same $25 profit is a 20% margin on a $125 price and a 25% markup on a $100 cost.
How do I calculate margin from cost and selling price?
Subtract cost from price, then divide by price. On a cost of $100 and a price of $125 the profit is $25 and the margin is 25 ÷ 125 = 20%.
What price gives me a 30% margin?
Divide the cost by 0.70. On a $100 cost that is $142.86. Adding 30% to the cost instead gives $130, which is only a 23.1% margin.
Can margin be more than 100%?
No. Profit cannot exceed the price it comes from, so margin approaches 100% but never reaches it. Markup has no such ceiling — a 100% markup is a 50% margin, and a 900% markup is a 90% margin.
Is gross margin the same as net profit?
No. These figures are gross: they exclude your overheads, financing and currency costs. Net profit is what remains after those. A healthy gross margin can still leave a loss overall.