Updated · Built and checked by the PlinzoTools team, formulas tested against published sources
Calculate gross profit margin from revenue and cost.
25.00% Margin
Profit margin expresses profit as a percentage of revenue -- the standard way to compare profitability across products or businesses regardless of their size.
Enter revenue and cost. Profit and margin percentage appear instantly.
Margin % = ((Revenue - Cost) / Revenue) × 100
Margin is calculated on revenue (the selling price), not cost -- this is the key distinction from markup. See the Margin to Markup Converter to convert between the two.
Using the default values, revenue of 200 and cost of 150 gives a profit of 50 and a margin of 25 percent (50 divided by 200). Consider a few other cases to build intuition.
The last row shows a loss. The tool does not refuse negative results: a cost above revenue gives a negative profit and a negative margin, which is a useful warning sign when you are testing prices.
You can use the margin formula in reverse. If you know your cost and the margin you want, the price is cost divided by one minus the margin (as a decimal). For a cost of 60 and a target margin of 40 percent, price equals 60 divided by 0.60, which is 100. A common error is to add 40 percent to the cost, giving 84, which is really only a 28.6 percent margin (24 divided by 84). Running 84 and 60 through this calculator confirms the difference immediately. That gap between margin and markup is the reason many pricing mistakes happen.
A margin tells you how many cents of each unit of currency you keep. A 25 percent margin means 25 cents of every dollar of sales is profit and 75 cents covers cost. Compare figures for similar products in your own business to find weak lines, and compare across time to see whether discounts or rising supplier costs are eroding profit. Comparisons with other businesses only help when they define cost the same way you do.
Because it is a ratio, margin ignores scale. A 10 percent margin on very large sales can deliver more absolute profit than a 40 percent margin on tiny sales, so look at the profit amount alongside the percentage. Also consider whether cash flow, refunds, returns and payment fees are included in the cost you entered.
For statutory accounts, tax filings, loan applications or valuations, rely on your accountant's definitions of profit. This calculator is a quick pricing and analysis aid, not accounting advice.
Varies enormously by industry -- retail often runs thin (2-5%), software/services can run much higher (20%+). Compare against industry benchmarks, not a universal number.
Yes. If your cost is higher than your revenue, profit and margin both come out negative, showing a loss on that sale or period.
Divide your cost by one minus the target margin expressed as a decimal. For a cost of 60 and a 40 percent margin, the price is 60 divided by 0.6, which is 100.
Generally not. Sales tax you collect is passed to the tax authority, so including it would overstate your margin. Use the pre-tax selling amount.
It depends on what you enter as cost. Direct product cost gives a gross-style margin; including all expenses gives a net-style one. The calculator only applies the formula to your two numbers.
Reference: Consumer Financial Protection Bureau