This profit margin calculator turns a cost and a price into gross margin, markup and gross profit, or works the other way and gives you the price for the margin or markup you want. It is built for small business owners, resellers and service businesses setting or checking their prices.
How to use the calculator
- What do you want to work out? Pick I know my price, Price for a target margin or Price for a target markup.
- Cost per unit: what one item or job costs you: materials, product cost, direct labor.
- Selling price per unit: shown when you already know your price.
- Target gross margin: shown in the target-margin mode; profit as a share of the selling price.
- Target markup: shown in the target-markup mode; profit as a share of the cost.
- Units sold per month (optional): adds a monthly gross profit line.
How it is calculated
| Result | Formula |
|---|---|
| Gross profit per unit | price − cost |
| Gross margin | (price − cost) ÷ price |
| Markup | (price − cost) ÷ cost |
| Price for a target margin | cost ÷ (1 − margin) |
| Price for a target markup | cost × (1 + markup) |
| Gross profit per month | gross profit per unit × units |
Prices are rounded to the cent before margin and markup are worked out, so a target margin can show a hair above or below the number you typed.
Worked example with the default inputs
A $40 item sold for $65, 100 units a month:
| Line | Amount |
|---|---|
| Selling price | $65.00 |
| Cost | $40.00 |
| Gross profit per unit | $25.00 |
| Markup ($25 ÷ $40) | 62.5% |
| Gross profit per month | $2,500.00 |
| Gross margin ($25 ÷ $65) | 38.46% |
Switch to Price for a target margin with the default 35% and the price becomes $61.54. Switch to Price for a target markup with 50% and it becomes $60.00, which is a 33.33% margin.
What this calculator leaves out
- Overhead. Rent, software, payroll, insurance and marketing are not in gross margin. Net margin will be lower.
- Taxes, including income tax and any sales tax you collect.
- Discounts, returns and spoilage, which lower the average price you actually receive.
- Platform and payment fees. If you sell on Etsy or Amazon, the Etsy and Amazon profit calculator takes those out per order.
- Changing costs. The calculator uses one cost per unit; in real life, volume discounts and freight change it.
Markup vs margin: why 50% markup is not 50% margin
Markup and margin describe the same dollar of profit from two directions, and mixing them up is one of the most common pricing errors. If you aim for a 50% margin but apply a 50% markup, you end up with a 33.33% margin.
| Markup | Gross margin | Price on a $40 cost |
|---|---|---|
| 25% | 20% | $50 |
| 50% | 33.33% | $60 |
| 100% | 50% | $80 |
| 200% | 66.67% | $120 |
The conversion is simple: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin). Margin is capped below 100%, because profit can never be larger than the price. Markup has no cap.
Which one to use depends on the decision. Markup is handy at the counter, when you start from a supplier’s cost. Margin is what your profit and loss statement shows, and it is the number to compare with your overhead. A shop with 38% gross margin and overhead equal to 30% of sales keeps roughly 8 cents of each sales dollar before tax. If overhead is 40%, the same prices lose money.
From margin to real profit
Gross margin per item is only as good as the cost number behind it. When your books track product cost, freight and fees correctly, the margin on your monthly profit and loss statement tells you whether prices need to move. That is the work of our monthly bookkeeping service, and our page for small business owners shows how we help with numbers like these. More tools are on our free calculators page. If you want help reading your margins, book a free 15 to 30 minute consultation.