How to Calculate Profit Margin
Profit is the amount remaining after costs are subtracted from revenue. Profit margin expresses that profit as a percentage of revenue, making it easier to compare products, orders, or businesses of different sizes.
Profit formula
Profit = Revenue − Total Costs
Profit margin formula
Margin % = Profit ÷ Revenue × 100
The calculator uses revenue after the entered discount. Percentage selling fees and fixed extra costs are then included to provide a more realistic net profit estimate.
Profit Margin vs. Markup
Margin and markup both describe profit, but they use different denominators. Margin divides profit by revenue; markup divides profit by cost. A 25% markup does not produce a 25% margin.
| Cost | Selling price | Profit | Margin | Markup |
|---|---|---|---|---|
| 100 | 125 | 25 | 20.00% | 25.00% |
| 100 | 150 | 50 | 33.33% | 50.00% |
| 100 | 200 | 100 | 50.00% | 100.00% |
Selling Price for a Target Margin
Without discounts or selling fees, divide cost by one minus the desired margin rate. A product costing 100 needs a selling price of 125 to produce a 20% margin—not 120.
Basic target price formula
Selling Price = Total Cost ÷ (1 − Target Margin)
This calculator extends the formula by allocating extra costs across quantity, allowing for a planned discount, and accounting for percentage selling fees. If target margin plus selling fees reaches 100%, no finite selling price can satisfy the inputs.
Costs to Consider Before Setting a Price
- Purchase or manufacturing cost per unit
- Packaging, labeling, and fulfillment materials
- Shipping or delivery paid by the seller
- Marketplace commissions and payment-processing fees
- Advertising and customer-acquisition costs
- Labor, storage, software, rent, and allocated overhead
- Returns, wastage, warranty, and expected losses
- Non-recoverable taxes or duties treated as business costs
Revenue, Tax, and Accounting Treatment
Tax collected on behalf of a government is commonly excluded from sales revenue, while non-recoverable taxes, duties, and business taxes may be expenses. Exact treatment depends on jurisdiction, registration, and accounting policy. This calculator does not calculate GST, VAT, sales tax, income tax, or inventory accounting.
Use results for pricing scenarios and internal planning. Confirm reporting figures with your accounting records or a qualified professional.