How it works
Profit margin and markup look similar but answer different questions. Margin is the share of the selling price you keep — the number that matters for the health of the business. Markup is the share you add to the cost — the number you use when setting a price.
A 36% margin means you keep 36 cents of every dollar of revenue. The same numbers give a 56.25% markup, because the markup is measured against the smaller cost figure. Mixing them up is the most common pricing mistake.
Formula
Profit = revenue − cost. Profit margin = profit ÷ revenue × 100. Markup = profit ÷ cost × 100.
What each input means
- Revenue: Total sales revenue for the period, before any costs.
- Cost: Total cost of the goods sold: product cost, shipping, packaging, and payment fees.
Worked example: $50,000 revenue, $32,000 cost
- Profit: $50,000 − $32,000 = $18,000
- Profit margin: $18,000 ÷ $50,000 × 100 = 36.0%
- Markup: $18,000 ÷ $32,000 × 100 = 56.25%
- You keep 36 cents of every dollar you take in.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit divided by revenue; markup is profit divided by cost. On $50,000 of revenue and $32,000 of cost, the margin is 36% and the markup is 56.25%. Margin can never exceed 100%; markup can.
What is a good profit margin?
It depends on the industry. Grocery stores run on 1–3%, most retailers on 5–10%, and software or digital products on 20–40% or more. Compare yourself with your own industry, not with a single number.
Is margin before or after tax?
This calculator gives gross margin — before tax, rent, and salaries unless you include them in the cost. Net margin, after all expenses, is lower and is the number that decides whether the business survives.
Should the cost include shipping and fees?
Yes, for an honest margin. Include product cost, shipping, packaging, and payment fees — anything you pay to make the sale happen.