How to Calculate Profit Margin
Last updated: June 2026
Margin vs markup
Both describe the gap between cost and selling price, but they divide it differently:
- Margin = (Revenue − Cost) ÷ Revenue × 100 — profit as a share of the selling price.
- Markup = (Revenue − Cost) ÷ Cost × 100 — profit as a share of the cost.
Markup is always the larger percentage, so quoting markup as if it were margin overstates how profitable you are.
A worked example
An item costs you $60 and sells for $100:
- Gross profit = 100 − 60 = $40.
- Margin = 40 ÷ 100 = 40%.
- Markup = 40 ÷ 60 ≈ 66.7%.
Same $40 of profit, two very different percentages. If you tell an investor you run a "66% margin" when you mean markup, you've nearly doubled your apparent profitability.
Pricing for a target margin
To hit a target margin, divide cost by (1 − margin). For a 40% margin on a $60 cost: 60 ÷ 0.60 = $100. This is the reliable way to set prices, because it works backward from the profitability you actually want.
Gross vs net margin
Gross margin counts only the direct cost of the product. Net margin subtracts everything — shipping, payment fees, labor, returns, overhead. A healthy gross margin can still leave a thin net margin, so track net to know whether the business truly makes money.
Use the calculator
Put these ideas to work with the Profit Margin Calculator. You can also browse all MoneyCalcKit calculators or read the calculator methodology for formulas and assumptions.
Frequently asked questions
What's the difference between margin and markup?
Margin is profit divided by the selling price; markup is the same profit divided by cost. Markup is always the larger number.
How do I price for a target margin?
Divide your cost by (1 − target margin). For a 40% margin on a $60 cost, that's 60 ÷ 0.60 = $100.
What is a good profit margin?
It varies enormously by industry. Compare against businesses like yours, and watch net margin — after all costs — not just gross.