Profit margin calculator
| Margin | Markup | Multiplier |
|---|---|---|
| 10% | 11.1% | 1.111× |
| 15% | 17.6% | 1.176× |
| 20% | 25% | 1.250× |
| 25% | 33.3% | 1.333× |
| 30% | 42.9% | 1.429× |
| 33.3% | 50% | 1.500× |
| 40% | 66.7% | 1.667× |
| 50% | 100% | 2.000× |
| 60% | 150% | 2.500× |
| 66.7% | 200% | 3.000× |
| 75% | 300% | 4.000× |
What counts as healthy depends entirely on the trade: grocery lives at 3%, software at 80%.
Figures are before tax unless a tax field is shown. Currency is whatever you type, nothing is converted.
Profit margin is profit divided by selling price; markup is the same profit divided by cost. A product costing 50 and selling at 100 carries a 50% margin and a 100% markup. To price for a target margin, divide cost by one minus it: a 40% margin on a 50 cost needs a price of 83.33.
How to calculate profit margin
Different trades habitually speak in different terms, which is why the margin-and-markup confusion persists. Wholesale and manufacturing quote markup because they start from cost; retail and finance quote margin because they start from revenue and it is what appears on a profit and loss statement. Both describe the same trade, and every markup has exactly one corresponding margin: 25% markup is 20% margin, 50% is 33.3%, 100% is 50%, 200% is 66.7%. When someone says "we work on fifty per cent", the only safe response is to ask which fifty. The multiplier column on the conversion table is the practical way out of it — a shop wanting a consistent 40% margin multiplies every ex-VAT cost by 1.667 and never converts a percentage again, which also makes a price list auditable, because every line should be cost times the same figure. The period tabs answer a different question. Gross margin subtracts only the direct cost of goods; what belongs in that figure is the judgement call that makes it comparable or useless, since direct materials and the labour that touches the product belong there while rent, admin salaries and marketing do not. Net margin subtracts everything, and the gap between the two is the most informative number in a small business: a retailer at 45% gross and 4% net is spending 41 points of revenue on running the place, which is where any improvement has to come from.
What people use it for
- Pricing a product to hit a margin target
- Comparing margins across a range
- Checking a wholesale offer is worth taking
- Pricing stock from a supplier cost
- Converting a quoted markup into a margin
- Checking whether a quoted percentage is a margin or a markup
- Setting a consistent multiplier across a whole range
- Reporting gross margin to a lender or investor
- Tracking margin drift across quarters
- Preparing management accounts
- Assessing overall business health from net margin
- Deciding whether a price rise or a cost cut helps more
- Comparing two product lines on the same basis
- Benchmarking a net margin against the rest of the sector
- Settling the margin-or-markup argument with a new starter
Questions
Subtract cost from selling price, divide by the selling price, multiply by 100.
Markup divides profit by cost; margin divides the same profit by the selling price. A 50% markup is a 33.3% margin.
Entirely trade-dependent. Grocery runs on 2–5%, clothing retail 40–60%, software 70–85%. Compare against your own sector, not a general figure.
Subtract cost from price, divide by cost, multiply by 100.
Cost divided by 0.6. A cost of 50 needs a price of 83.33.
A 100% markup: you double the cost.
Divide the margin by one minus the margin. A 0.4 margin gives 0.4 ÷ 0.6 = 66.7% markup.
Divide the markup by one plus the markup. A 1.0 markup gives 1 ÷ 2 = 50% margin.
Markup is always the larger for any positive profit, because it divides by the smaller number, and it has no upper bound. Margin is capped at 100%, because profit cannot exceed revenue.
Yes. "Keystone" is the retail term for doubling the cost, which gives a 50% margin.
Revenue minus cost of goods sold, as a percentage of revenue, sometimes called the gross profit ratio. It is the money left to cover everything else.
Materials, direct labour and usually inbound freight. Rent, admin salaries and marketing do not.
Gross subtracts only the cost of goods. Net subtracts everything, including overheads, interest and tax, and is always the smaller figure. Net margin also travels under net income margin and, in conversation, the bottom line.
It varies hugely by sector. Under 5% is thin, around 10% is comfortable for most trades, and above 20% is unusual outside software and professional services.
Because overheads sit between them. The size of that gap is the most useful diagnostic in the accounts.
Yes, and often is for a growing business investing ahead of revenue. Sustained negative margin without funding is a different problem.
Before, on both sides. VAT passes through the business and never counts as revenue, and mixing an inclusive price with an ex-VAT cost inflates the apparent margin by the whole rate.