Profit Margin & Markup Calculator

Profit margin is profit divided by the selling price. Markup is profit divided by the cost. Buy something for $60, sell it for $100, and the $40 profit is a 40% margin but a 66.67% markup. A 50% markup is only a 33.33% margin, a 100% markup is a 50% margin, and to earn a 40% margin on a $60 cost you have to charge $100, not $84.

Margin and markup describe the same profit from two different angles, and confusing them is one of the most expensive mistakes in pricing. This guide gives you the formulas, a markup to margin chart in both directions, a price table for hitting a target margin, and the three margins on an income statement, gross, operating and net. It then covers cost of goods sold, how many units a profit goal takes, and why the price with the highest margin is rarely the one that earns the most.

How to calculate profit margin

The Profit Margin Calculator above takes two numbers, cost and selling price, and returns three:

profit = selling price − cost profit margin % = profit ÷ selling price × 100 markup % = profit ÷ cost × 100

Worked through on a $60 cost and a $100 price:

• Profit = $100 − $60 = $40
• Margin = $40 ÷ $100 = 40%
• Markup = $40 ÷ $60 = 66.67%

Same $40 of profit, but margin measures it against the selling price while markup measures it against the cost. Whenever you make a profit, the cost is smaller than the price, so markup is always the bigger-looking number.

Three edge cases work exactly the way the arithmetic says they should:

• Price below cost. A $100 cost sold at $80 is a $20 loss. The margin is −$20 ÷ $80 = −25%, and the markup is −$20 ÷ $100 = −20%.
• Zero cost. A digital file with no per-unit cost sold for $50 is a 100% margin. Markup divides by the cost, and dividing by zero has no answer, so the calculator shows markup as 0% in that case.
• Rounding. Results are rounded to two decimal places, which is why one third shows as 33.33%.

Can profit margin be more than 100%?

No. Margin is a share of the selling price, and you cannot keep more than the whole price, so margin tops out at 100% when cost is zero. Markup has no ceiling. A $10 item sold for $40 is a 300% markup and a 75% margin. If someone quotes a "150% margin", they almost certainly mean markup.

Margin vs markup: the difference in one example

Suppose you want a 40% margin and you add 40% to your cost as a markup. On a $60 item that gives an $84 price. $24 of profit on an $84 sale is a 28.57% margin, more than 11 points short of the target. Repeat that across a catalogue and every product is underpriced by the same systematic error.

The confusion usually comes from two sides of a business using different words. Buying and pricing tend to talk in markup, because they start from a cost and add to it. Accounts, lenders and financial statements talk in margin, because they start from revenue. Doubling the cost, sometimes called keystone pricing, is a 100% markup and a 50% margin. Both descriptions are correct. Mixing them up is where the money goes.

Markup to margin conversion chart

To turn a markup into a margin, divide the markup by one plus the markup:

margin = markup ÷ (1 + markup)

For a 50% markup: 0.50 ÷ 1.50 = 0.3333, a 33.33% margin. The last two columns show what each markup means on a $10 cost.

Markup	Margin	Price on a $10 cost	Profit per unit
10%	9.09%	$11.00	$1.00
20%	16.67%	$12.00	$2.00
25%	20.00%	$12.50	$2.50
33.33%	25.00%	$13.33	$3.33
50%	33.33%	$15.00	$5.00
75%	42.86%	$17.50	$7.50
100%	50.00%	$20.00	$10.00
150%	60.00%	$25.00	$15.00
200%	66.67%	$30.00	$20.00

The gap widens as the numbers grow. At a 10% markup the margin is almost the same figure. At a 200% markup the margin is exactly a third of it.

Margin to markup: the reverse chart

To go the other way, divide the margin by one minus the margin:

markup = margin ÷ (1 − margin)

For a 40% margin: 0.40 ÷ 0.60 = 0.6667, a 66.67% markup.

Target margin	Markup needed
10%	11.11%
15%	17.65%
20%	25.00%
25%	33.33%
30%	42.86%
33.33%	50.00%
40%	66.67%
50%	100.00%
60%	150.00%
70%	233.33%
75%	300.00%
80%	400.00%

The markup you need is always higher than the margin you want, and above 50% it climbs steeply. Going from a 50% to a 60% margin adds 50 points of markup. Going from 60% to 70% adds 83.33 points, and from 70% to 80% adds 166.67.

How to price for a target margin

Work backwards from the margin you want:

price = cost ÷ (1 − target margin)

For a 40% margin on a $60 cost: $60 ÷ (1 − 0.40) = $60 ÷ 0.60 = $100. That is why the example at the top lands exactly on $100.

Here is what the formula gives on a $10 cost at every margin from 20% to 70%, next to the price you get if you make the common mistake of adding the margin percentage to the cost as a markup.

Target margin	Correct price	Profit per unit	Markup	Price if you add the % to cost	Margin you actually get
20%	$12.50	$2.50	25.00%	$12.00	16.67%
25%	$13.33	$3.33	33.33%	$12.50	20.00%
30%	$14.29	$4.29	42.86%	$13.00	23.08%
35%	$15.38	$5.38	53.85%	$13.50	25.93%
40%	$16.67	$6.67	66.67%	$14.00	28.57%
45%	$18.18	$8.18	81.82%	$14.50	31.03%
50%	$20.00	$10.00	100.00%	$15.00	33.33%
55%	$22.22	$12.22	122.22%	$15.50	35.48%
60%	$25.00	$15.00	150.00%	$16.00	37.50%
65%	$28.57	$18.57	185.71%	$16.50	39.39%
70%	$33.33	$23.33	233.33%	$17.00	41.18%

The error in the last column gets worse as the target rises. Aim for 70% by adding 70% to cost and you land on 41.18%, closer to 40% than to the margin you planned.

For any cost other than $10, divide by the same number. A $23 cost at a 45% margin is $23 ÷ 0.55 = $41.82. A $7.40 cost at a 60% margin is $7.40 ÷ 0.40 = $18.50.

Rounding to a shelf price moves the margin a little. $14.29 on a $10 cost is a 30.02% margin. Round it up to $14.99 and the margin becomes 33.29%. Enter the price you will actually charge into the calculator to see the margin you will really earn.

Margin calculator: the maximum cost a target margin allows

Sourcing uses the same formula turned around. If the market sets the selling price and you know the margin you need, the most you can pay per unit is:

maximum cost = selling price × (1 − target margin)

For a product that sells at $25:

Margin you need	Maximum cost per unit	Profit per unit
20%	$20.00	$5.00
30%	$17.50	$7.50
40%	$15.00	$10.00
50%	$12.50	$12.50
60%	$10.00	$15.00
70%	$7.50	$17.50

That maximum is a landed cost, not a supplier quote. A $12 quote is not a $12 cost once freight and duty are on top of it, which is the subject of the cost of goods sold section below. Negotiate against the landed number or the margin you agreed to will not survive the shipment.

Gross margin vs operating margin vs net margin

The calculator above works on one product at a time: the price minus whatever cost you type in. With only the product cost entered, that is a gross margin at the unit level. A business has three margins, and each one takes more costs out of the same revenue.

gross margin = (revenue − cost of goods sold) ÷ revenue operating margin = (gross profit − operating expenses) ÷ revenue net profit margin = net profit ÷ revenue

Here is one worked income statement for an example online store with $200,000 of sales in a year. The figures are illustrative, picked so the arithmetic is easy to follow. They are not typical of any industry.

Line	Amount	Share of revenue
Revenue, after refunds and discounts	$200,000	100%
Cost of goods sold	−$110,000	55%
Gross profit	$90,000	45% gross margin
Marketplace and payment fees	−$22,000	11%
Advertising	−$20,000	10%
Wages and contractors	−$14,000	7%
Software, storage and other overhead	−$6,000	3%
Operating profit	$28,000	14% operating margin
Interest on a stock loan	−$3,000	1.5%
Income tax	−$5,000	2.5%
Net profit	$20,000	10% net profit margin

Read top to bottom, the same $200,000 of sales shows a 45% margin, a 14% margin and a 10% margin. None of them is wrong. They answer different questions:

• Gross margin says whether the product is priced well against what it costs to buy or make.
• Operating margin says whether the business model works, whether gross profit covers the cost of selling the product and running the business. Operating profit is often called EBIT, earnings before interest and taxes.
• Net profit margin says what is left for the owner after financing costs and tax.

One caution on the tax line. For a sole proprietor or a business whose profit passes through to the owner, income tax is usually paid personally rather than by the business, so the business's own books often stop at profit before tax. Compare like with like.

How to calculate net profit margin

net profit margin = net profit ÷ revenue × 100

From the statement above: $20,000 ÷ $200,000 × 100 = 10%. For every dollar of sales, ten cents is left after every cost.

Three details change the answer more than people expect:

1. Divide by revenue, not gross orders. A store that takes $220,000 of orders and refunds $20,000 has $200,000 of revenue. Dividing $20,000 of net profit by $220,000 shows 9.09% instead of 10%, and the gap grows with the refund rate.
2. Take sales tax and VAT out of the price. Tax you collect on behalf of a government is not your revenue. If your prices include VAT, strip it out before calculating any margin. The VAT Calculator separates a VAT-inclusive price into its net and tax parts.
3. Match the period. A single month's net margin swings with one-off costs, an annual software bill or a heavy advertising push. Look at a trailing twelve months alongside the latest month.

Net margin on a single product

On one unit, the gap between gross and net margin is the fees, shipping, advertising and returns that come out of every sale. The margin in the calculator is gross unless you put those costs into the cost field, which is exactly what the next section does.

Net profit calculator: what to subtract from each online sale

The calculator above does not know your platform, your fees or your ad spend. It subtracts whatever you enter as Cost from whatever you enter as Selling price. Enter the fully loaded cost of one order and the profit it returns is your net profit per order before overhead, and the margin is your margin per order after variable costs.

Here is how that cost adds up for an example $40 sale:

Per-order cost	Amount	How to find your own figure
Landed cost of the item	$14.00	Supplier price plus inbound freight, duty and clearance, per unit
Marketplace and payment fees	$6.00	Your platform's fee calculator, at this selling price
Outbound shipping and packaging	$5.50	Your label cost plus box, mailer and filler
Advertising per order	$6.00	Last month's ad spend ÷ last month's orders, e.g. $3,000 ÷ 500
Returns allowance	$1.20	Last quarter's return and refund losses ÷ last quarter's orders
Total cost per order	$32.70
Net profit per order	$7.30	$40.00 − $32.70

Enter $32.70 as the cost and $40 as the price and the calculator returns $7.30 of profit, an 18.25% margin and a 22.32% markup. Enter only the $14.00 landed cost and it returns a 65% margin. Both are correct. Only one is the money that reaches your bank account.

Fees are the line sellers most often get wrong from memory, because they depend on the platform, the category, the price and the payment method, and platforms revise them. Rather than guess, run the price through the matching tool: the Shopify Fee Calculator, Amazon FBA Profit Calculator, Etsy Fee Calculator, eBay Fee Calculator, TikTok Shop Fee Calculator or Walmart Marketplace Fee Calculator. If you are choosing where to sell, the Marketplace Fee Comparison Calculator prices the same order across several channels at once.

The advertising line deserves its own check. If $6.00 of ad spend per order turns a $13.30 profit into $7.30, the ad budget has a ceiling, and the Breakeven ROAS Calculator works out the return on ad spend at which a campaign stops making money.

What this per-order figure still leaves out is rent, software, wages and anything else that does not rise with each order. Those come out of the month's total per-order profit, which is how the operating margin in the income statement is reached.

Cost of goods sold calculator: the COGS formula

There is no separate COGS tool on this page, and you do not need one. Cost of goods sold for a period comes from three numbers in your inventory records:

COGS = opening inventory + purchases − closing inventory

Everything you had at the start plus everything you bought is what was available to sell. Whatever is still on the shelf at the end was not sold, so it comes back out.

Worked through for the example store's year:

Step	Amount
Opening inventory, at landed cost	$12,000
Plus supplier invoices for stock	$92,000
Plus inbound freight on that stock	$8,000
Plus import duty and customs clearance	$4,000
Goods available for sale	$116,000
Minus closing inventory, at landed cost	−$6,000
Cost of goods sold	$110,000

That $110,000 is the COGS line in the income statement above, and it is what produces the 45% gross margin. Value opening and closing inventory on the same landed basis as your purchases, or the formula mixes two different definitions of cost.

What goes into cost of goods sold

For a business that buys and resells, COGS generally covers the goods themselves and the cost of getting them to where you sell from: inbound freight, import duty, customs brokerage and similar charges. A business that makes its products also includes raw materials and the direct labour and production costs of making them. Office rent, advertising, software and general wages are not COGS. They are operating expenses.

Outbound shipping to customers, packaging and marketplace or payment fees are treated differently from one business to the next. Some sellers put them in COGS, others treat them as selling expenses below gross profit. Either can be reasonable. What matters is doing it the same way every period so this year's gross margin can be compared with last year's, and knowing which way a benchmark was built before you compare yourself with it.

The principle is stable: inventory is carried at its cost of purchase plus the other costs of bringing it to its present location and condition, which is how the international inventory standard IAS 2 frames it. Tax rules add their own detail, including simplified inventory methods that some small businesses can use. Confirm how your business should account for inventory with an accountant or the official guidance from your tax authority, such as the IRS, HMRC, CRA or ATO.

Why an online seller's COGS must include inbound shipping

The number on the supplier invoice is not your cost. A unit costs what it took to get it into your warehouse, or into a fulfilment warehouse, ready to sell. For imported goods the difference is large.

Take a shipment of 500 units at $4.00 each, with $900 of freight, $100 of insurance, $150 of brokerage and clearance, and duty charged at 7.5% on goods plus freight plus insurance. Those are the default example inputs of the Landed Cost Calculator, not a real duty rate for any product. Your rate depends on the product's tariff classification, so check it with your customs authority.

• Goods: 500 × $4.00 = $2,000
• Duty: ($2,000 + $900 + $100) × 7.5% = $225
• Total shipment cost: $2,000 + $900 + $100 + $225 + $150 = $3,375
• Landed cost per unit: $3,375 ÷ 500 = $6.75

Selling at $24.99, a seller who uses the $4.00 invoice price sees an 83.99% gross margin. The real figure on a $6.75 landed cost is 72.99%. That 11-point gap is $2.75 per unit, $1,375 on this one shipment, that the inflated margin says you have and you do not. Discounts, ad budgets and wholesale offers set against the 84% figure will all be too generous.

Inbound shipping from your own premises to a marketplace fulfilment centre is commonly handled the same way: spread the cost of each inbound shipment across the units in it and add it to their unit cost.

Profit goal calculator: units needed to hit a profit target

The calculator above gives you profit per unit. Turning a profit goal into a sales target takes one more formula:

units needed = (fixed costs + target profit) ÷ (price − variable cost per unit)

The bottom of that fraction, price minus the costs that rise with every unit, is the contribution margin: what each sale contributes first toward fixed costs and then toward profit.

Example: a product sells at $50, costs $30 per unit to buy, ship and sell, and the business has $10,000 of fixed costs for the period. Contribution margin is $50 − $30 = $20 a unit.

Target profit	Units needed	Revenue needed
$0, break-even	500	$25,000
$2,500	625	$31,250
$5,000	750	$37,500
$10,000	1,000	$50,000
$20,000	1,500	$75,000

Every extra $20 of profit takes one extra unit. When the division does not come out whole, round up, because rounding down leaves you just short of the goal.

The Break-Even Calculator computes the first row directly. To use it for a profit goal, enter your fixed costs plus the target profit in its fixed costs field. The break-even units it returns are then the units needed to reach that goal.

Units needed for a target net profit margin

If the goal is a margin rather than a dollar amount, the revenue you need is:

revenue needed = fixed costs ÷ (contribution margin ratio − target net margin)

The contribution margin ratio here is $20 ÷ $50 = 40%. For a 10% net margin: $10,000 ÷ (0.40 − 0.10) = $33,333.33, which rounds up to 667 units at $50. As a check, 667 units bring in $33,350, contribute $13,340, and leave $3,340 after fixed costs, a 10.01% net margin.

Target net margin	Revenue needed	Units needed
5%	$28,571.43	572
10%	$33,333.33	667
15%	$40,000.00	800
20%	$50,000.00	1,000

If the target margin is equal to or higher than the contribution margin ratio, no amount of volume reaches it. With a 40% contribution ratio and any fixed costs at all, a 40% net margin is out of reach, because fixed costs always take something out. The only fixes are a higher price or a lower variable cost.

Maximum profit calculator: the price that earns the most money

The highest margin is not the most profit. Raising the price lifts the margin on every unit, but at some point it loses enough sales that total profit falls. The price that earns the most sits where those two effects balance, and finding it needs your own sales figures at different prices. No calculator can know how many units you will sell at a price you have not tried.

total profit = (price − cost per unit) × units sold at that price

Here is an example with a $12 cost per unit and sales figures from price tests:

Price	Units sold	Margin	Revenue	Total profit
$20	1,000	40.00%	$20,000	$8,000
$25	800	52.00%	$20,000	$10,400
$30	600	60.00%	$18,000	$10,800
$35	420	65.71%	$14,700	$9,660
$40	280	70.00%	$11,200	$7,840

$30 earns the most. $40 has the best margin on the table and the lowest total profit. $20 and $25 bring in identical revenue, but $25 makes $2,400 more profit because it ships 200 fewer units to get there.

Economists describe the peak as the point where the revenue from one more sale equals the cost of making it, marginal revenue equal to marginal cost. In practice sellers find it by testing: hold a price on one product for a fixed period, record units sold, change it, repeat, and build this table from real results. Keep the test periods comparable, since a price tested in a busy season will look better than the same price in a quiet one. Put each test price through the calculator with its full per-order cost, because fees charged as a percentage of the price rise as the price does.

How discounts cut profit margin

A discount comes straight out of profit, because the cost does not fall with the price. At a $100 price and a $60 cost, a 20% discount takes the price to $80. Profit falls from $40 to $20, the margin falls from 40% to 25%, and you need to sell twice as many units to make the same total profit. A 20% discount cut profit per unit in half.

sales multiple needed = profit per unit at full price ÷ profit per unit at the discount

Here that is $40 ÷ $20 = 2. With no fees involved, the discount that wipes out profit completely equals the margin: a 40% discount on a 40% margin product sells it at cost.

Fees make this worse, especially fixed per-order fees that do not shrink with the price. The Discount Margin Calculator works it through with a percentage fee and a fixed fee included, and shows how many extra units per 100 a promotion must sell to hold profit flat and the largest discount you can offer before profit reaches zero.

What is a good profit margin? How to benchmark yours

There is no single good margin, and a published "industry average" can mislead more than it helps. Averages blend businesses of different sizes, sales channels and accounting choices, and a gross margin with fees and outbound shipping inside COGS is not comparable with one that leaves them out. Instead of chasing someone else's number, benchmark in this order:

1. Against your own history. Track gross, operating and net margin monthly and on a trailing twelve months. A margin that is sliding tells you more than one that sits below somebody's average.
2. Against the costs the margin has to cover. A gross margin is only healthy if it is larger than your operating expenses as a share of revenue. In the income statement above, a 45% gross margin minus 31% of revenue in operating expenses left 14%. Had operating expenses been 45% of revenue, the same gross margin would have left nothing.
3. Against comparable public companies, with care. Listed companies publish revenue, cost of sales, operating income and net income in their annual reports, the Form 10-K in the United States, so you can calculate their margins yourself with the formulas above. They are far larger than most small sellers, and their cost definitions may not match yours.
4. Against peers, through a trade association or your accountant. Industry groups and accountants who work with many businesses in one sector sometimes share anonymised margin data. Ask exactly which costs sit inside COGS before you compare.
5. Against your own plan. Decide the profit you need, work back through the profit goal formula above, and the margin that plan requires is the benchmark that matters.

Common profit margin mistakes

Adding the margin percentage to cost. A 40% "margin" added to a $60 cost gives $84 and a 28.57% margin. Use price = cost ÷ (1 − margin).

Calling a markup a margin. A 100% markup is a 50% margin. Quote the wrong one to a partner, a buyer or a lender and every number built on it is off.

Using the invoice price as cost. Freight, duty and clearance belong in the unit cost. In the landed cost example above, leaving them out overstated the gross margin by 11 points.

Treating gross margin as take-home. The $40 order with a 65% gross margin kept 18.25% after fees, shipping, advertising and returns.

Calculating margin on a tax-inclusive price. Sales tax and VAT collected are not revenue, so a margin worked out on the tax-inclusive price is overstated.

Averaging margins across products. A product earning a 60% margin on $10,000 of sales and one earning 20% on $30,000 do not average 40%. Total profit is $6,000 + $6,000 = $12,000 on $40,000 of revenue, a 30% margin. Weight by revenue, or divide total profit by total revenue.

Discounting as if margin were markup. A 25% discount on a product with a 25% margin sells it at exactly cost, before fees, not at a small profit.

The bottom line

Margin is profit as a share of the price. Markup is profit as a share of the cost. To price for a target margin, divide the cost by (1 − margin), never just add the margin percentage to the cost. Build that cost from the landed cost of the goods, not the supplier invoice, then be clear which margin you are looking at: gross for pricing the product, operating for whether the business works, net for what you keep. Enter your cost and price above to see profit, margin and markup together, then enter the full per-order cost to see the margin that survives fees, shipping and ads.

Related calculators

• Landed Cost Calculator: the true per-unit cost of imported stock, freight and duty included
• Discount Margin Calculator: what a sale price does to profit once fees are counted
• Break-Even Calculator: units needed to cover fixed costs, or a profit goal
• Breakeven ROAS Calculator: the ad return a product's margin can afford
• Marketplace Fee Comparison Calculator: the same order priced across selling channels
• VAT Calculator: take VAT out of a price before working out margin