Profit Margin Calculator

How to calculate profit margin

To calculate profit margin, subtract the item's cost from its selling price, divide the result by the selling price, and multiply by 100. An item you bought for $20 and sold for $50 makes $30 of profit, and $30 ÷ $50 is a 60% margin.

Profit margin = (selling price − cost) ÷ selling price × 100

You divide by the selling price because margin measures how much of each sale you keep. The IRS describes gross profit the same way: sales minus the cost of the goods sold. When cost means only the item itself, the result is your gross margin.

Margin vs markup

Margin and markup use the same profit but divide it by different numbers, which is why they're so easy to mix up.

A 50% markup is not a 50% margin. An item that costs $10 and sells for $15 has a 50% markup, but only a 33.33% margin, because the $5 profit is a third of the $15 price. To hit a given margin, the markup always has to be higher.

How to find a selling price for a target margin

To find the price that gives you a target margin, divide your cost by 1 minus the margin as a decimal. For a 40% margin on a $20 item, that's $20 ÷ 0.6 = $33.333, which rounds up to $33.34. Rounding down to $33.33 would leave you just under 40%, so always round up.

Selling fees that are a percentage of the price change the formula, because the fee grows as the price does:

Price = (item cost + fixed fees + shipping + other costs) ÷ (1 − fee rate − target margin)

With an $18 item, a 10% selling fee plus $0.30 per sale, and a 40% target, the price is $18.30 ÷ 0.5 = $36.60. At that price the fees come to $3.96, and $14.64 of profit is exactly 40% of the sale.

Some targets can't be reached. If the fee rate and the margin you want add up to 100% or more, no price works, because the fee and the profit together would take the whole sale. A 70% fee with a 40% target is one example. Switch the calculator to Find a selling price to work it out with your own numbers.

What costs to include

Item cost is what the item itself costs you. For a resale, that's what you paid for it. For something you make, it's the materials, printing or production for that one item.

Selling costs go in separately: marketplace and payment fees, shipping you pay, and packaging or supplies used for the order. Keep them apart from item cost so you can see your gross margin and your margin after those costs side by side. Enter each cost only once. If item cost already includes packaging, leave packaging out of the selling costs.

Some costs don't belong to a single sale at all: rent, software subscriptions, equipment, general advertising and income tax. They still affect what your business keeps, but they're spread across everything you sell, so they sit outside a per-sale margin.

Gross vs net profit margin

Gross profit margin compares gross profit with revenue. Gross profit is what's left of your revenue once the cost of goods sold comes out, and gross profit margin is gross profit divided by total revenue, times 100.

Net profit margin divides net profit by revenue instead. Net profit is what's left after the business's other expenses too, such as rent, wages and running costs. So a single sale can have a healthy gross margin while the business as a whole earns much less.

When you add selling costs, the result is a margin after the costs you entered for that sale. It's closer to what you actually keep, but it still isn't your business's net profit margin, because overhead, taxes and returns aren't in it.

Margin examples for selling and side income

Four sales with different costs, worked out the same way as the calculator.

The low-margin resale is the one to watch. It still makes money, but $1 on a $30 sale leaves almost no room for a return, a price drop or a cost you forgot to count.