Profit Margin Percentage Calculator
Enter your costs and selling price to determine your business profitability.
What is Margin Percentage?
Margin percentage (specifically gross margin) is a financial metric used to measure the profitability of a product or service. it represents the percentage of total sales revenue that a company retains after incurring the direct costs associated with producing or purchasing the goods sold.
Understanding your margin is critical for business sustainability. It tells you how many cents of profit you generate for every dollar of sale. For instance, a 40% margin means you keep $0.40 for every $1.00 in sales to cover operating expenses and net income.
The Margin Percentage Formula
To calculate the margin percentage manually, you use the following formula:
How to Calculate Margin Step-by-Step
- Identify your Revenue: This is the final selling price of your item.
- Identify your Cost: This is the Cost of Goods Sold (COGS), which includes materials and direct labor.
- Calculate Gross Profit: Subtract the Cost from the Revenue.
- Divide Profit by Revenue: Take your Gross Profit and divide it by the original Selling Price.
- Convert to Percentage: Multiply that result by 100.
Margin vs. Markup: What's the Difference?
While often used interchangeably, margin and markup are mathematically different:
- Margin is the profit relative to the Selling Price.
- Markup is the profit relative to the Cost Price.
Example: If an item costs $70 and sells for $100, the profit is $30. The margin is 30% ($30/$100), but the markup is 42.8% ($30/$70).
Practical Example
Imagine you run an e-commerce store selling premium coffee beans. You buy a bag from a wholesaler for $12.00 (Cost) and sell it to a customer for $20.00 (Revenue).
- Gross Profit: $20.00 – $12.00 = $8.00
- Margin Calculation: ($8.00 / $20.00) = 0.40
- Margin Percentage: 40%