Profit Percentage Calculator
Calculate your business margins and markup instantly
Understanding Profit Percentage Calculations
In the world of business and retail, understanding the difference between profit margin and markup is crucial for maintaining a healthy bottom line. While both metrics use the same basic data (Cost Price and Selling Price), they provide different perspectives on your financial health.
Profit Margin vs. Markup
Profit Margin (Gross Margin) represents the portion of the selling price that is profit. It tells you how much out of every dollar of sales you keep as profit. It is always calculated relative to the Selling Price.
Markup represents how much more you charge for an item over what it cost you to acquire or produce it. It is always calculated relative to the Cost Price.
The Formulas
| Metric | Formula |
|---|---|
| Gross Profit | Selling Price – Cost Price |
| Profit Margin % | (Gross Profit / Selling Price) × 100 |
| Markup % | (Gross Profit / Cost Price) × 100 |
Real-World Example
Imagine you run a retail store and you purchase a product from a wholesaler for $100 (Cost Price). You decide to sell it to your customers for $150 (Selling Price).
- Gross Profit: $150 – $100 = $50
- Markup: ($50 / $100) × 100 = 50% Markup
- Profit Margin: ($50 / $150) × 100 = 33.33% Profit Margin
In this scenario, while your markup is 50%, your actual profit margin is only 33.33%. This distinction is vital for accurate budgeting and tax calculations.
Why It Matters
A common mistake for new entrepreneurs is confusing these two numbers. If you know your overhead costs are 30% of your revenue, and you set a 30% markup, you might assume you are breaking even. However, a 30% markup only translates to roughly a 23% margin, meaning you would actually be losing money on every sale.