Profit Margin Calculator
Enter cost and price to see your margin and markup — or set a target margin and get the price you should charge.
From cost & price
Price for a target margin
Margin vs. markup — the mistake that quietly kills profits
They sound interchangeable but measure different things. Margin is profit as a share of the price: (price − cost) ÷ price. Markup is profit as a share of the cost: (price − cost) ÷ cost. A product costing $40 sold for $100 has a 60% margin but a 150% markup. A shop owner who wants "50% margins" but applies a "50% markup" is actually earning a 33% margin — a third less profit than intended.
| Markup applied | Actual margin |
|---|---|
| 25% | 20% |
| 50% | 33% |
| 100% | 50% |
| 150% | 60% |
Pricing from a target margin
To hit a chosen margin, divide cost by (1 − margin): a $40 cost at a 60% target gives $40 ÷ 0.4 = $100. Never multiply cost by (1 + margin) — that's markup math and undershoots your goal.
What's a healthy margin?
It varies enormously: grocery retail survives on 1–3% net margins with huge volume; restaurants typically see 3–9% net; software and services often run 60–90% gross. Compare against your own industry, and remember gross margin must cover all your fixed costs before anything is profit — our break-even calculator picks up where this one ends.
What a price change really does to profit
Because a price increase falls almost entirely into gross profit while unit cost stays put, small price moves have outsized effects. On a $40-cost item priced at $60 (33% margin), selling 1,000 units:
| Price change | New price | Profit per unit | Units needed for same total profit |
|---|---|---|---|
| −20% | $48 | $8 | 2,500 (+150%) |
| −10% | $54 | $14 | 1,429 (+43%) |
| No change | $60 | $20 | 1,000 |
| +10% | $66 | $26 | 769 (−23%) |
| +20% | $72 | $32 | 625 (−38%) |
Read the bottom rows carefully: after a 10% price rise you could lose 23% of your customers and be no worse off. After a 10% discount you must find 43% more customers just to stand still. Discounting is far more dangerous, and price increases far safer, than instinct suggests.
The costs that quietly erode margin
Margin calculated on an incomplete cost is optimistic fiction. The items most often missed:
- Payment processing — roughly 2.4–2.9% plus a fixed fee. On thin margins this is significant.
- Returns and breakage — if 3% of units come back unsellable, your effective cost per sold unit rises by about 3%.
- Inbound freight and duties — spread across the units in the shipment, not forgotten because it arrived on a separate invoice.
- Free shipping — if you offer it, it's a variable cost, not a marketing expense.
- Your own labour — the single most common omission among owner-operators, and the reason many "profitable" small businesses can't afford to hire.
- Discounts actually given — calculate margin on your average realised price, not list price.
Pricing a mixed product range
Uniform markup across every product leaves money on the table at both ends. A more effective approach segments the range:
- High-turnover staples — thinner margins are fine; volume and footfall do the work.
- Specialist or hard-to-source items — carry higher margins. Customers who need them rarely price-shop, because there's little to compare against.
- Custom or bespoke work — should be your highest margin. It can't be commoditised, and it consumes your scarcest resource.
- Loss leaders — deliberately thin, used to attract customers. Only sensible if they reliably lead to higher-margin purchases; track whether they actually do.
What matters overall is your blended margin across the actual sales mix. A shop can run 15% margins on half its volume and remain healthy if the other half runs at 60%.
Turning margin into a business decision
Gross margin on its own doesn't tell you whether the business works — it has to cover fixed costs first. Multiply your contribution per unit by realistic monthly volume and compare it to rent, wages and overheads. If it doesn't clear them comfortably, the answer is a pricing or cost change, not more hours. Our break-even calculator completes that picture, and the full pricing guide works through it in detail.