Understanding your profit margin is fundamental to running a sustainable business. It measures how much of every dollar of sales a company actually keeps in earnings. High margins indicate a more efficient business that has better control over its costs relative to its prices.
The Profit Margin Formula
To calculate gross profit margin, you need two primary figures: your revenue (selling price) and your Cost of Goods Sold (COGS). The formula is expressed as a percentage:
It is common to confuse margin with markup, but they provide different perspectives on your pricing:
Profit Margin: Uses the selling price as the base. It tells you what percentage of the final price is profit.
Markup: Uses the cost price as the base. It tells you how much you added to the cost to reach the selling price.
In the example above, while the margin is 60%, the markup is actually 150% ($45 profit divided by $30 cost).
Why Profit Margin Matters for SEO and Business Growth
If you are looking to scale your business, knowing your net and gross margins allows you to determine how much you can afford to spend on customer acquisition (CAC), such as advertising or SEO services. A business with a thin 5% margin has very little room for error, while a business with a 40% margin can reinvest significantly into marketing to capture more market share.
function calculateProfitMargin() {
var cost = parseFloat(document.getElementById('costPrice').value);
var revenue = parseFloat(document.getElementById('sellingPrice').value);
var resultsDiv = document.getElementById('resultsArea');
if (isNaN(cost) || isNaN(revenue)) {
alert("Please enter valid numbers for both Cost and Selling Price.");
return;
}
if (revenue 0) ? (grossProfit / cost) * 100 : 0;
// Displaying results
document.getElementById('grossProfitVal').innerText = "$" + grossProfit.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('grossMarginVal').innerText = margin.toFixed(2) + "%";
if (cost > 0) {
document.getElementById('markupVal').innerText = markup.toFixed(2) + "%";
} else {
document.getElementById('markupVal').innerText = "N/A (Cost is 0)";
}
resultsDiv.style.display = 'block';
}