Calculate gross and net profit margins.
Enter values to see the result.
Profit margin - key business metric
Profit margin is a percentage indicator showing what share of revenue represents profit. Gross margin shows the efficiency of production or procurement, while net margin includes all operating costs. High margin means the company efficiently manages costs and can reinvest profit into growth.
Margin vs markup - differences
There's often confusion between margin and markup. Markup is the percentage by which the purchase price is increased to get the selling price. Margin, on the other hand, is the percentage of profit in the selling price. With 50% margin and 100% markup we achieve the same financial result, but calculations differ. It's important to understand this difference when setting prices.
Pricing strategies and margin maximization
To maximize margin, it's worth analyzing cost structure and looking for optimization areas. Strategies such as product differentiation, building a premium brand, or selling additional services can allow raising prices without losing customers. It's also important to regularly monitor margin and compare it with industry benchmarks.
A 40% markup is a 28.6% margin — and the gap widens as you go up
Margin and markup describe the same money against different bases. Margin is the share of the selling price you keep; markup is how far above cost you priced. Businesses that confuse the two systematically underprice, and the shortfall grows exactly where the stakes are highest.
How it works
- Calculates margin and markup from the same cost and price, so the two numbers can be compared side by side.
- Works backwards from a target margin to the price you must charge — which is the calculation people get wrong.
- Shows the gap between the two at each level, since it is small at the bottom and severe at the top.
margin % = (price − cost) ÷ price × 100 base is the price markup % = (price − cost) ÷ cost × 100 base is the cost to hit a target margin: price = cost ÷ (1 − margin) margin can never reach 100%; markup has no ceiling
Worked example
An item costing 60, and a business that wants to keep 40% of each sale.
- applying a 40% markup gives a price of 84
- at 84 the margin is only (84 − 60) ÷ 84 = 28.6%
- to actually keep 40%, price = 60 ÷ (1 − 0.40) = 100
- that is a markup of 66.7%, not 40%
Pricing at 84 instead of 100 loses 16 on every unit — a 16% revenue shortfall caused entirely by dividing by the wrong number.
Reading the result
- The gap widens as ambitions rise: a 20% margin needs a 25% markup, a 40% margin needs 66.7%, and a 50% margin needs a full 100% markup. Doubling cost is not a doubling of anything except cost.
- Suppliers and trade bodies usually quote markup; accountants and investors always mean margin. When someone says 'we work on 30%', asking which they mean is not pedantry — it is a 12.9-point difference.
- Margin has a hard ceiling below 100%, because you cannot keep more than the whole price. Markup can exceed 100% freely, which is why very high markup figures sound more impressive than they are.
- This is gross margin only. Overheads, returns, payment fees and discounts all come out of it, so a 40% gross margin is not 40% profit.
Common questions
- Which should I price on?
- Set the margin you need, then derive the price with cost ÷ (1 − margin). Margin is what your accounts, your break-even and your investors are measured on; markup is just the arithmetic that gets you there.
- Why does a 50% margin need a 100% markup?
- Because at a 50% margin, cost and profit are equal halves of the price. Going from cost to price means doubling — a 100% markup. The two only look alike at small percentages, where the bases barely differ.