Margin Calculator
A margin calculator determines profit margin from the selling price and cost of a product or service. It is useful for businesses, retailers, freelancers, and anyone who wants to understand how much of a sale represents profit.
What Is Profit Margin?
Profit margin is the percentage of revenue that remains as profit after subtracting the cost of a product or service.
Margin Formula
The basic profit margin formula is:
Profit Margin = (Selling Price β Cost) Γ· Selling Price Γ 100
First calculate the profit:
Profit = Selling Price β Cost
How to Calculate Margin
Suppose a product costs $60 and is sold for $100.
Profit:
$100 β $60 = $40
Profit margin:
($40 Γ· $100) Γ 100 = 40%
The profit margin is therefore 40%.
Margin vs. Markup
Margin and markup are related but are calculated using different bases.
| Measure | Formula |
|---|---|
| Profit Margin | Profit Γ· Selling Price Γ 100 |
| Markup | Profit Γ· Cost Γ 100 |
For a product that costs $60 and sells for $100, the margin is 40%, while the markup is:
($40 Γ· $60) Γ 100 β 66.67%
Finding the Selling Price From a Target Margin
If you know the cost and want a specific profit margin, the required selling price can be calculated as:
Selling Price = Cost Γ· (1 β Margin Γ· 100)
For example, if the cost is $60 and the target margin is 40%:
Selling Price = 60 Γ· (1 β 0.40) = $100
Margin Example
| Value | Amount |
|---|---|
| Cost | $75 |
| Selling Price | $125 |
| Profit | $50 |
| Profit Margin | 40% |
Gross Margin
Gross margin measures the portion of revenue remaining after the direct cost of goods or services is deducted.
Gross Margin = (Revenue β Cost of Goods Sold) Γ· Revenue Γ 100
It does not normally include expenses such as rent, interest, taxes, or other operating costs.
Why Margin Matters
Profit margin helps businesses evaluate pricing, compare products, measure profitability, and understand how much revenue is available after direct costs.
Common Mistakes to Avoid
Do not confuse margin with markup. Margin uses the selling price as the denominator, while markup uses the cost.
Also include the appropriate costs when determining your actual profit. A simple margin calculation may not account for every business expense.
Quick Summary
To calculate profit margin, subtract cost from selling price and divide the profit by the selling price. The formula is Profit Margin = (Selling Price β Cost) Γ· Selling Price Γ 100. Margin is different from markup because it is based on revenue rather than cost.