Profit Margin Calculator

Margin and markup are not the same number

These two terms get swapped constantly, and the mix-up costs sellers real money. Margin is profit as a percentage of your selling price: Margin % = (Price − Cost) ÷ Price × 100. Markup is profit as a percentage of your cost: Markup % = (Price − Cost) ÷ Cost × 100. Same profit dollar amount, different denominator — and because price is always bigger than cost on a profitable sale, margin is always a smaller percentage than markup on the same transaction.

Concretely: a product that costs $10 and sells for $15 has a $5 profit. That's a 50% markup (5 ÷ 10) but only a 33.3% margin (5 ÷ 15). Sellers who set prices by "marking up 50%" often assume they're also getting a 50% margin — they're not, and the gap widens as the markup percentage grows.

The two formulas, and when to use each

Use Margin % = (Price − Cost) ÷ Price × 100 when you already know your price and cost and want to check profitability against a target — most retail and e-commerce planning talks in margin, because it's a direct percentage of revenue.

Use Price = Cost ÷ (1 − Margin%/100) when you know your cost and want to hit a specific margin. This is the formula the calculator's second mode uses. It's easy to get wrong by hand: a common error is computing Price = Cost × (1 + Margin%), which actually calculates a markup-based price, not a margin-based one, and undershoots your target margin.

A worked example

Say a product costs $10 to make or source, and you sell it for $25. Gross profit is $25 − $10 = $15. Margin is $15 ÷ $25 = 60%. Markup is $15 ÷ $10 = 150%. Now suppose instead you know the cost is $10 and you want a 60% margin, but don't know what price to charge: Price = $10 ÷ (1 − 0.60) = $10 ÷ 0.40 = $25 — the same number, worked backwards.

Tips for using margin in pricing decisions

Gross margin here only reflects cost of goods versus price — it doesn't account for shipping, payment processing, marketplace fees, advertising, returns or overhead. Those all eat into the number further, so treat this margin as a ceiling, not your final take-home profit. If you sell through a marketplace like Amazon and want those costs built in, the Amazon FBA Calculator walks through referral fees, fulfillment fees and ad spend to get to a true net profit and ROI.

When comparing margins across products, remember that a lower-margin, higher-volume item can out-earn a higher-margin, low-volume one in total profit — use the quantity field above to compare total profit, not just the percentage, when deciding where to focus. A product with a thin 15% margin selling 1,000 units a month can easily out-earn one with a fat 50% margin selling only 50 units, even though the second product "looks" more profitable on a spec sheet.

Common margin mistakes worth avoiding

The single most frequent error is treating a target markup as if it were the equivalent margin — for example, assuming "I marked it up 50%, so I'm keeping 50% of the sale" when in fact a 50% markup only produces a 33.3% margin. The second most common mistake is pricing purely off cost without checking what the resulting margin looks like once a marketplace's fees, payment processing and average return rate are subtracted — a healthy-looking 40% margin on paper can shrink to single digits once a 15% referral fee and a return allowance are layered on top. A third mistake is anchoring to a single "industry standard" margin figure pulled from an unrelated business, rather than working from your own true landed cost and the price the market will actually bear.

It also helps to revisit margin whenever a cost input changes — a supplier price increase, a new shipping surcharge, or a currency shift can quietly erode margin on a product whose selling price hasn't moved in months. Re-running the numbers periodically, rather than only when a price change is already under discussion, catches margin erosion before it becomes a real problem.