Profit Margin Calculator

Calculate gross profit, margin percentage, and target selling price.

Cost of Goods Sold (COGS)

Selling Price / Revenue

How It Works

The Profit Margin Calculator computes gross profit dollars, profit margin percentages, and equivalent markups for retail, e-commerce, and wholesale businesses.

It also features a reverse calculation mode that determines the exact selling price required to achieve your company’s target profit margin.

Formula & Calculation

Profit Margin Formula

Margin % = ((Revenue − Cost) / Revenue) × 100

Revenue (Price)=Gross sales receipts or selling price per unit

Cost (COGS)=Cost of goods sold or variable manufacturing cost per unit

Gross Profit=Revenue − Cost

Profit margin is always evaluated relative to total revenue (top-line sales).

Target Selling Price Formula

Selling Price = Cost / (1 − TargetMarginRate)

Cost=Direct unit cost

TargetMarginRate=Desired profit margin expressed as a decimal (e.g., 40% = 0.40)

To achieve a 40% margin on a $60 item, you cannot simply add 40% to cost ($60 × 1.40 = $84 gives only 28.6% margin). You must divide by (1 − 0.40) = 0.60 to reach the proper $100 price.

Step-by-Step Example

Example 1: Calculating Margin & Markup

Find the margin and markup on a product costing $60 sold for $100:

Step 1: Calculate gross profit: $100 − $60→ $40.00 gross profit

Step 2: Calculate profit margin (relative to revenue): ($40 / $100) × 100→ 40.00% profit margin

Step 3: Calculate markup (relative to cost): ($40 / $60) × 100→ 66.67% markup

The sale generates $40 gross profit, representing a 40% margin and a 66.67% markup.

Example 2: Pricing for a Target 50% Margin

Determine the required selling price for an item costing $75 to yield 50% margin:

Step 1: Determine reciprocal divisor: 1 − 0.50→ 0.50

Step 2: Divide unit cost by reciprocal: $75 / 0.50→ $150.00 selling price

Selling the item for $150 produces $75 gross profit, which equals exactly 50% of the $150 revenue.

Assumptions & Edge Cases

Revenue Must Exceed Zero: Profit margin cannot be calculated on zero revenue, as division by zero is undefined. Revenue must be greater than zero.
Target Margin Less than 100%: A target margin of 100% or greater would require an infinite selling price for any non-zero cost and is rejected inline.

Frequently Asked Questions

What is the fundamental difference between margin and markup?

Margin is profit divided by selling price (revenue), while markup is profit divided by cost. A 50% markup on a $100 cost item creates a $150 price, yielding a 33.3% profit margin.

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