Profit Margin Calculator
Work out your profit margin and markup from what you pay and what you sell for, find the price that gives the margin you want, or the most you can pay for stock.
Profit margin
≈ 33.33%
Buying at $80.00 and selling at $120.00 gives a margin of about 33.33% and a markup of 50%.
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Why does this work?
All steps as text
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How to calculate profit margin
Buying at $80 and selling at $120 makes a profit of $40. Divided by the price, $40 ÷ $120 = 0.3333, a margin of 33.33%. In other words, a third of every sale is yours to keep once the goods are paid for.
The price for the margin you want
Divide the cost by (1 − margin). For a 30% margin on goods that cost $80: $80 ÷ 0.7 ≈ $114.29.
A common mistake is to add 30% to the cost: $80 × 1.3 = $104. That is a 30% markup, but only a 23.08% margin, because the profit of $24 is divided by the price, $104, not by the cost.
Margin vs markup
Both start from the same profit. Margin divides it by the selling price; markup divides it by the cost. Selling for $120 what cost $80 is a 33.33% margin and a 50% markup. Margin is always the smaller number, and it can never reach 100%, while a markup can be any size.
| Margin | Markup |
|---|---|
| 10% | 11.11% |
| 20% | 25% |
| 25% | 33.33% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100% |
| 60% | 150% |
| 75% | 300% |
To convert: markup = margin ÷ (1 − margin), and margin = markup ÷ (1 + markup).
Gross margin and net margin
This calculator works out the gross margin on a product: price minus the cost of the goods. A business’s net margin also takes off everything else (rent, wages, marketing, interest and tax), so it is always lower. A shop with a 40% gross margin might keep a net margin of only a few percent.
Questions
What is a good profit margin?
It depends on the trade. Supermarkets work on thin margins and high volume, while software and services can run very high gross margins. Compare with businesses like yours, and remember that the gross margin has to pay all your other costs.
How do I calculate margin in Excel?
With the cost in A2 and the price in B2: =(B2-A2)/B2, formatted as a percentage. For the price that gives a 30% margin: =A2/(1-30%).
Can a margin be negative?
Yes. If you sell below cost, the profit is negative, and so is the margin: selling for $100 what cost $120 is a −20% margin, a loss of $20.
Why can’t a margin be 100% or more?
A 100% margin would mean the goods cost nothing: all of the price is profit. A real cost always takes some of the price, so the margin stays below 100%.
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