Learn as you go · Free lesson
Understand your profit margin & markup result
Start with the calculator above. Then follow the example below, one step at a time.
What this calculator does
Margin and markup both describe the gap between selling price and cost, but they look at that gap from different starting points. Mixing them up can lead you to charge a price that leaves less than you expected.
This calculator shows both percentages for one sale. Enter the selling price before sales tax and the cost that belongs with it. Be clear about what that cost includes: a material cost alone tells a different story from the full cost of delivering the sale.
How it works
First subtract cost from selling price to find profit per sale. Margin divides that profit by selling price. It tells you how much of the customer price remains after the entered cost.
Markup divides the same profit by cost. It tells you how much you added on top of that cost. Because the starting numbers are different, the percentages are usually different too. Neither percentage adds missing costs for you.
When talking with a supplier, partner or bookkeeper, name the percentage you mean. Saying “I want 25%” without saying margin or markup leaves an important part of the price decision unclear.
Profit per sale = price − cost. Margin = profit ÷ price × 100. Markup = profit ÷ cost × 100.
Worked example
Example only. These are fictional business numbers, not recommended targets.
- Example: a fictional shop pays $100 for an item and sells it for $125. The entered cost covers only that item, not the shop’s monthly bills.
- Subtract $100 from $125. The profit on that entered cost is $25.
- Margin is $25 ÷ $125 × 100 = 20%. For every $100 of sales at these terms, $20 remains after this cost.
- Markup is $25 ÷ $100 × 100 = 25%. The shop added a quarter of the cost to arrive at the selling price.
- A 25% margin would require about $133.33 before rounding adjustments, not $125. That is because the desired profit is a share of the final price, not a share of the original $100 cost.
How to read your result
A positive margin means price exceeds the entered cost. A negative margin means the sale loses money against that cost. A zero margin leaves no difference to cover any costs not included. These meanings stay the same even when the percentages look impressive.
There is no universal ideal margin. A product with a strong margin may still sell too slowly to cover rent, while a lower-margin product may take less time to deliver. Compare similar offers and include the same cost categories so the comparison teaches you something useful.
Common mistakes
- Calling a 25% markup a 25% margin.
- Comparing a material-only margin with a margin that includes labor.
- Including sales tax collected in the selling price.
- Assuming a good percentage guarantees enough monthly profit.
FAQ
Which percentage should I use?
Use the one that matches your question and label it clearly. Margin describes the share of sales left after cost; markup describes the addition to cost.
Can markup be higher than 100%?
Yes, mathematically, when profit is greater than cost. This calculator calculates markup from the entered price and cost rather than asking you to enter a markup target.
Why do I see a dash for a percentage?
A zero selling price makes margin undefined, and zero cost makes markup undefined. The tool uses a dash instead of inventing a percentage.
Does this include rent and insurance?
Only if you include an appropriate share in your cost figure. The calculator cannot know which costs you left out.
What happens when I discount the price?
If cost stays the same, the difference left from each sale shrinks. Recalculate before the promotion to see the new margin, rather than subtracting percentage points from the old margin.
Related calculators and guides
Educational estimates based on your inputs. Not financial, tax, or legal advice.