How to calculate profit margin

Profit margin tells you what share of the selling price is left after cost. Enter a cost and a price, or a cost and a target margin, in the calculator.

The unit (gross) margin formula

Profit = Price − Cost
Margin % = Profit ÷ Price × 100
Price for a target margin = Cost ÷ (1 − Margin)

Worked example

You buy or make an item for $27 and sell it for $45.

• Profit: $45 − $27 = $18
• Margin: $18 ÷ $45 = 0.40 = 40%

To go the other way: you still want a 40% margin, but the cost is $30. Price = $30 ÷ (1 − 0.40) = $30 ÷ 0.60 = $50. Check: profit $20, $20 ÷ $50 = 40%.

Gross, operating, and net

The calculator on this page is for a single product or line: price versus that item's cost. On a full income statement:

• Gross margin = (Revenue − Cost of goods sold) ÷ Revenue
• Operating margin also subtracts operating expenses (rent, wages, marketing)
• Net margin subtracts interest and taxes as well

A 40% gross margin can still be a thin net margin once overhead is paid. Don't treat the unit margin as take-home profit.

Margin is not markup

Markup divides the same profit by cost. A 40% margin is a 66.67% markup. Use the margin vs markup guide and the conversion chart when you are setting prices from a cost-plus rule.