Margin Calculator
Profit margin is a key indicator of how efficiently a business turns sales into profit. It shows the percentage of revenue left after covering costs, helping owners and managers evaluate pricing strategies, control expenses, and compare performance across products or services. This guide explains the main concepts, formulas, and practical examples so you can calculate and understand margins with ease.
How to calculate profit margin
Profit margin shows the percentage of revenue that becomes profit after covering costs. Use the formula: Profit Margin (%) = (Revenue − Cost) ÷ Revenue × 100.
Start with total sales, subtract costs, divide by sales, then multiply by 100. Knowing any two values (revenue, cost, profit, margin) lets you calculate the rest.
Gross margin focuses on production costs, while net margin includes all expenses. Keeping a strong margin means controlling costs, adjusting prices, and monitoring changes regularly.
Example: Revenue = $200, Cost = $150 → Profit = $50 → Profit Margin = (200 − 150) ÷ 200 × 100 = 25%.
Gross margin formula
Gross margin measures how much of your revenue remains after subtracting the direct costs of goods sold (COGS).
The formula is: Gross Margin (%) = (Revenue − COGS) ÷ Revenue × 100.
It focuses only on production costs, excluding expenses like marketing, rent, or salaries.
A high gross margin means you keep more money from each sale to cover other expenses and profit. Tracking it helps set prices, control production costs, and compare performance over time.
Example: Revenue = $500, COGS = $300 → Gross Profit = $200 → Gross Margin = (500 − 300) ÷ 500 × 100 = 40%.
A note on terminology
In finance, terms like margin, gross margin, and profit margin are often used interchangeably, but their meaning can vary depending on the context. Margin usually refers to the percentage of revenue kept as profit, gross margin focuses on profit after direct production costs, and net margin includes all expenses.
Understanding these distinctions is essential for accurate analysis and communication, especially when comparing results across industries or companies.
Example: Revenue = $1,000, COGS = $600, Other Expenses = $200 → Gross Margin = (1,000 − 600) ÷ 1,000 × 100 = 40%, Net Margin = (1,000 − 600 − 200) ÷ 1,000 × 100 = 20%.
Margin vs. markup
Margin and markup are related but not the same. Margin is the percentage of the selling price that is profit: Margin (%) = (Selling Price − Cost) ÷ Selling Price × 100.
Markup is the percentage added to the cost to set the selling price: Markup (%) = (Selling Price − Cost) ÷ Cost × 100.
Both express profitability but from different perspectives. Margin looks at profit as part of the selling price, while markup focuses on how much you increase the cost to determine that price.
Example: Cost = $80, Selling Price = $100 → Margin = (100 − 80) ÷ 100 × 100 = 20%, Markup = (100 − 80) ÷ 80 × 100 = 25%.
| Cost | Margin % | Selling Price | Markup % |
|---|---|---|---|
| $80 | 20% | $100.00 | 25% |
| $80 | 30% | $114.29 | 42.86% |
| $100 | 25% | $133.33 | 33.33% |
| $200 | 40% | $333.33 | 66.67% |
When and why to use the margin calculator?
A margin calculator is useful whenever you need to quickly determine profitability without doing manual calculations. It helps business owners, sales teams, and financial analysts check if pricing covers costs and meets target margins. Use it when setting product prices, evaluating supplier quotes, or comparing profitability across products or services.
By instantly showing the relationship between cost, selling price, and margin, it reduces errors, saves time, and supports data-driven choices. This is particularly helpful in fast-moving industries where even small margin changes can impact overall profit.
Based on 1 source
- 1. Brigham, E.F.; Ehrhardt, M.C. Financial Management: Theory and Practice; 2016
Margin Calculator - FAQ
Gross profit margin measures profit after deducting only the cost of goods sold, while net profit margin accounts for all expenses including overhead and taxes.
Yes, an excessively high margin can indicate overpricing, which may reduce sales volume or attract competition.
Margin in sales is the percentage of the selling price that represents profit after deducting the cost of goods sold.
To achieve a 20% margin, divide the cost by 0.8 to find the selling price or use the formula: (Selling Price − Cost) ÷ Selling Price × 100 = 20.
A good margin varies by industry, but many businesses aim for at least 10–20% to ensure profitability and cover expenses.
In Excel, use the formula: =(SellingPrice − Cost)/SellingPrice*100 to get the margin percentage.
To achieve a 10% margin, divide the cost by 0.9 to find the selling price or apply the formula: (Selling Price − Cost) ÷ Selling Price × 100 = 10.
No, margin is profit expressed as a percentage of sales, while profit is the actual amount earned in currency.
To achieve a 30% margin, divide the cost by 0.7 to get the selling price or apply the formula: (Selling Price − Cost) ÷ Selling Price × 100 = 30.
Markup from margin can be calculated with the formula: Margin ÷ (1 − Margin), using margin as a decimal.
