Profit Margin Calculator
Calculate profit margin and profit from price and cost.
How to use this tool
- Enter selling price and cost in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your profit margin and the full breakdown beneath it.
Calculate profit margin and profit from price and cost.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
Profit = Selling Price − Cost
Profit Margin = (Selling Price − Cost) ÷ Selling Price × 100
Margin (%) = (Price − Cost) ÷ Price × 100
How it works
Profit margin expresses the portion of each dollar of revenue that remains after deducting the cost of the item sold. This calculator computes gross profit by subtracting cost from selling price, then divides that profit by the selling price (not the cost) and multiplies by 100 to yield the margin percentage. This is the gross profit margin and reflects only the direct cost of the item, not overhead, taxes, or operating expenses.
Profit margin is always relative to revenue (price), which distinguishes it from markup, which is relative to cost.
Worked example
- Selling price = $100; Cost = $50
- Profit = $100 − $50 = $50
- Profit margin = $50 ÷ $100 × 100 = 50%
Profit margin = 50%; Profit = $50
Common mistakes to avoid
- Confusing profit margin (profit / price) with markup (profit / cost) — a 50% margin is not the same as 50% markup; they have different denominators.
- Using gross revenue instead of net revenue (after returns and allowances) in the denominator, overstating the margin.
- Ignoring overhead and operating expenses — the formula computes gross margin; net margin subtracts all operating costs.
Key terms
- Gross profit margin
- Revenue minus the direct cost of goods sold, expressed as a percentage of revenue.
- Cost of goods sold (COGS)
- The direct costs attributable to producing or purchasing the item being sold, used as the 'Cost' input here.
- Revenue
- The total income from selling a product; equal to the selling price for a single-unit calculation.
- Markup vs margin
- Markup is profit divided by cost; margin is profit divided by selling price. The same dollar profit gives a higher markup percentage than margin percentage.
Frequently asked questions
- What is a good profit margin?
- It varies heavily by industry. Grocery retail margins are often 2-5%; software companies may see 20-40%+. Compare against industry benchmarks rather than a universal standard.
- What is the difference between gross margin and net margin?
- Gross margin subtracts only the cost of goods sold. Net margin subtracts all expenses (COGS, operating expenses, taxes, interest), giving a more complete picture of profitability.
- How do I set a price to achieve a target margin?
- Rearrange the formula: Price = Cost / (1 - Margin). For a 40% margin on a $60 cost item: Price = $60 / 0.60 = $100.