Margin Calculator
Product Details
What you pay for the product.
Amount you sell it for.
Gross Profit Margin
You keep $ for every unit sold.
What is Profit Margin?
Gross Profit Margin is a financial metric that tells you what percentage of your revenue is actual profit. It reflects the profitability of a specific item or service after accounting for the direct costs (COGS) to produce or buy it.
Basically, it answers the question: "For every dollar I make in sales, how many cents do I get to keep?"
The Formulas
Gross Margin Formula
Always less than 100%. Uses revenue as the base.
Markup Formula
Can be over 100%. Uses cost as the base.
Why Does Margin Matter?
Understanding your margin is critical for pricing your products correctly.
- Pricing Strategy: If your margin is too low, you might not generate enough cash to cover operating expenses (rent, salaries, marketing).
- Industry Benchmarks: Comparing your margin to competitors helps you see if your costs are too high or your prices too low.
- Break-even Analysis: Knowing your margin helps you calculate exactly how many units you need to sell to cover your fixed costs.
Margin vs. Markup Example
This is where many business owners get tripped up. Let's use an example:
You buy a pair of shoes for $50 and sell them for $100.
- Profit: $50 ($100 - $50)
- Margin: 50% ($50 profit ÷ $100 price)
- Markup: 100% ($50 profit ÷ $50 cost)
If you want a 50% margin, you must double your cost. A 50% markup would only lead to a selling price of $75 (which is only a 33% margin).
Frequently Asked Questions
What is a good profit margin?
It varies wildly by industry. Grocery stores often run on thin margins (2-3%), while software companies can have margins of 70-80%. For retail, a gross margin of 50% (keystone pricing) is a common target.
Can margin be 100%?
Theoretically, yes, if your cost is $0. Services often approach high margins, but there is almost always some direct cost (time, software, transaction fees).