Profit Margin Calculator

Profit margin is one of the most critical financial health indicators for any business. It measures the degree to which a company or a business activity makes money, representing what percentage of sales has turned into profits. Simply put, it shows how many cents of profit a business generates for each dollar of sale.

If a company reports that it has a 35% profit margin, it means that it has a net income of $0.35 for every dollar of sales generated. An accurate profit margin calculation helps business owners evaluate their pricing strategies and control operational costs.

To manually calculate profit margin, you first need to find your Gross Profit by deducting your Cost of Goods Sold (COGS) from your total revenue. Then, you divide that Gross Profit by your total revenue to find your profit percentage.

Many business owners confuse profit margin with markup, which can lead to pricing errors. While both metrics measure profitability, they compare the profit to different base numbers.

• Profit Margin: The percentage of revenue that is profit (Profit ÷ Revenue). It dictates how much of every sales dollar you keep.
• Markup: The percentage added to the cost to determine the selling price (Profit ÷ Cost). It shows how much you inflated the price above what you paid for it.

Because revenue is always higher than cost (in a profitable scenario), markup will always be a higher percentage than margin. A 100% markup (doubling your money) results in a 50% profit margin.

If you know your product costs and have a specific profit margin goal, you must calculate the exact selling price needed to achieve that margin. Do not make the mistake of simply multiplying your cost by the margin percentage—that calculates markup, not margin.

Use this reference table to quickly convert between desired profit margins and their required cost markups.