Profit Margin Calculator
Determine profit margins, gross profit, and cost-revenue ratios for your products.
Profit Margin Calculator
Calculate gross profit margin
How to Calculate Profit Margin
Profit margin is a key business metric that represents the percentage of revenue that is turned into profit. It shows how much profit a company makes for every dollar of sales.
The Profit Margin Formula
Profit Margin (%) = ((Revenue - Cost) / Revenue) × 100
Step-by-Step Calculation
- Subtract the cost of the item from its revenue (selling price) to find the gross profit.
- Divide the gross profit by the revenue.
- Multiply the result by 100 to express it as a percentage margin.
For example, if a product costs $50 and sells for $80: the profit is 80 - 50 = $30. Divide $30 by $80 to get 0.375. Multiply by 100 to get a 37.5% profit margin.
Frequently Asked Questions
Profit margin is calculated as profit divided by selling price, whereas markup is profit divided by cost price. Margin is always lower than markup for a given price structure.
To achieve a 40% profit margin on an item that costs $60, divide cost by (1 - 0.40). Selling Price = $60 / 0.60 = $100. Profit is $40.
Profit margin is lower because it is calculated against the higher selling price (revenue), whereas markup is calculated against the lower wholesale cost price. For example, a 100% markup corresponds to a 50% profit margin.