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Profit Margin Calculator
Calculate profit margin, markup percentage, and revenue.
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Understanding Profit Margin vs. Markup
Profit Margin and Markup are two of the most important metrics for any business, yet they are often confused. While both use the same inputs (cost and price), they tell different stories about your profitability.
The Key Difference
- Profit Margin: Profit as a percentage of Revenue. (How much of every dollar you keep)
- Markup: Profit as a percentage of Cost. (How much you add to the cost price)
Example:
You buy a product for $50 and sell it for $100.
- Profit: $50
- Markup: ($50 / $50) × 100 = 100%
- Margin: ($50 / $100) × 100 = 50%
💡 Expert Tip: Pricing for Margin
If you want a specific margin (e.g., 20%), don't
just add 20% to your cost. That's markup! To get a 20% margin, divide your cost by 0.80.
Formula: Price = Cost / (1 - Desired Margin %)
⚠️ Common Mistake: Confusing Gross vs. Net
This calculator shows Gross Profit Margin (Revenue - COGS). It does not account for operating expenses like rent, utilities, or marketing. Your Net Profit Margin will always be lower. Ensure your gross margin is high enough to cover these overheads!
Reviewed by: Jennifer Wu, CPA & Financial Analyst
Last updated: November 27, 2025
Frequently Asked Questions
What is the difference between profit margin and markup?
Margin is profit divided by Price. Markup is profit divided by Cost. Margin is always lower than markup percentages.
How do I calculate a 20% profit margin?
Divide your cost by 0.80 (which is 1 - 0.20). For example, $80 cost / 0.80 = $100 price. This yields a $20 profit, which is 20% of $100.
What is a good profit margin?
It varies by industry. Retail is often 20-50%, while software can be 80%+. A 10% net margin is generally considered average for most businesses.
What is gross margin vs net margin?
Gross margin considers only direct costs (COGS). Net margin deducts all expenses (rent, tax, salaries). Net margin is the true bottom line.