Profit Margin Calculator

Profit margin answers the only question that matters about a price: of every dollar that comes in, how much stays? This calculator computes gross margin from cost and revenue — and runs in reverse, finding the selling price that hits a target margin — while reporting markup and cost ratio alongside so the three numbers never get confused again.

The Formulas

$\text{Gross profit} = \text{Revenue} - \text{Cost} \qquad \text{Gross margin} = \frac{\text{Gross profit}}{\text{Revenue}} \times 100$

$\text{Markup} = \frac{\text{Gross profit}}{\text{Cost}} \times 100 \qquad \text{Cost ratio} = \frac{\text{Cost}}{\text{Revenue}} \times 100$

And in target-price mode, the price that delivers a chosen margin $m$ on a known cost:

$\text{Selling price} = \frac{\text{Cost}}{1 - m/100}$

Margin is rated on the calculator's bands: 50%+ excellent, 30%+ good, 15%+ average, below 15% low — review pricing.

Worked Examples

Margin mode. Cost $40, revenue$100: gross profit $60, margin 60% (rated excellent), markup 150%, cost ratio 40%. Same product, four numbers — the one you quote in a strategy meeting (margin) and the one on a supplier invoice mindset (markup) differ by 90 points, which is why the pair must travel together.

Target-price mode. Cost $40 and a 60$100** — the same transaction from the other direction, and a built-in check: price for the margin you need, then verify it in margin mode.

Margin vs Markup: the Expensive Confusion

They share a numerator (profit) and differ in denominator, so markup is always the bigger number, and pricing by the wrong one systematically underprices: a business that wants a 40% margin but applies a 40% markup actually earns a 28.6% margin. Convert with $\text{markup} = \text{margin} \div (1 - \text{margin})$:

| Margin | Equivalent markup | | --- | --- | | 10% | 11.1% | | 20% | 25% | | 25% | 33.3% | | 30% | 42.9% | | 40% | 66.7% | | 50% | 100% |

Margin also has a ceiling markup lacks: margin cannot reach 100% (that would require zero cost — in target-price mode the calculator rejects margins of 100%+ for exactly this reason), while markup is unbounded. Keep units consistent — both figures per unit, or both across the same period's totals — and remember what "cost" includes decides which margin you have: this calculator computes gross margin (cost = cost of goods sold). Deduct operating expenses as well and you have operating margin; deduct everything including tax and interest and you have net margin. Gross margin is the product-health metric; a product can be grossly healthy while the business loses money on overhead — which is what the contribution margin calculator's break-even view adds.

Frequently Asked Questions

What is a good gross margin?

It depends on the industry's structure: software commonly runs 70–90% gross margins, consulting and services 40–60%, manufacturing 20–40%, retail 20–50% by category, and grocery 20–30% at the strong end. The calculator's rating bands are a general screen; the meaningful benchmark is your own sector's norm and your overhead load — a 25% margin is comfortable with lean overhead and fatal with heavy fixed costs.

Why does target-price mode reject a 100% margin?

Because the formula divides by (1 − margin): at 100%, that divisor is zero and the required price would be infinite — a margin of 100% means the entire price is profit, possible only at zero cost. At 99% the price is 100× cost, which is the arithmetic telling you the same story more politely.

Margin on one product or on the whole business?

Both, for different decisions. Per-product margins drive pricing, assortment, and which lines to push; blended business margin (same formulas on totals) drives viability judgments. Watch the mix effect: a business can raise its blended margin without improving any single product, purely by selling more of its high-margin line — and lose it the same way.