In this article
What Is Profit Margin?
Profit margin is the percentage of revenue that remains as profit after subtracting costs. It measures how efficiently a business converts sales into profit. A 30% margin means that for every dollar earned, 30 cents is profit and 70 cents covers costs.
Margin is different from markup, though the two are often confused. Margin is profit as a percentage of revenue (selling price), while markup is profit as a percentage of cost. A product bought for $70 and sold for $100 has a 30% margin but a 42.9% markup.
How Margin Calculations Work
The core formulas relate three values: cost, revenue (selling price), and profit. Knowing any two of these values lets you calculate the third, along with the corresponding margin and markup percentages.
- Margin formula — Margin (%) = ((Revenue - Cost) / Revenue) x 100. For a $100 sale with $60 cost: ((100 - 60) / 100) x 100 = 40%
- Markup formula — Markup (%) = ((Revenue - Cost) / Cost) x 100. For the same sale: ((100 - 60) / 60) x 100 = 66.7%
- Revenue from margin — Revenue = Cost / (1 - Margin/100). To achieve a 40% margin on a $60 cost: 60 / (1 - 0.4) = $100
Try it free — no signup required
Calculate Your Margin →When To Use a Margin Calculator
Understanding margins is essential for any business that sells products or services.
- Retail pricing — set prices that achieve your target margin while remaining competitive; factor in discounts, promotions, and seasonal adjustments
- E-commerce — calculate margins including platform fees, shipping costs, and payment processing to determine true net profitability per item
- Freelancing and consulting — price services based on target margins that account for overhead costs like software, insurance, and unpaid time between projects
Frequently Asked Questions
What is the difference between gross margin and net margin?
Gross margin subtracts only the direct cost of goods sold (COGS) from revenue, measuring production efficiency. Net margin subtracts all expenses including overhead, taxes, and interest, showing the final bottom-line profitability. A business can have a healthy gross margin but a thin net margin due to high operating costs.
What is a good profit margin?
Healthy margins vary widely by industry. Software companies often achieve 70-80% gross margins, while grocery retailers operate on 1-3% net margins. For small businesses, a net margin above 10% is generally considered good. Compare your margins to industry benchmarks rather than arbitrary targets.
How do I convert between margin and markup?
Margin to markup: Markup = Margin / (1 - Margin/100). For example, a 30% margin equals a 42.9% markup: 30 / (1 - 0.3) = 42.9. Markup to margin: Margin = Markup / (1 + Markup/100). A 50% markup equals a 33.3% margin: 50 / (1 + 0.5) = 33.3. The margin percentage is always lower than the markup percentage for the same profit.