Calculate your profit margins and markup
💡 Why This Matters Profit margin tells you how much of each dollar you keep. A 20% margin means $0.20 of every $1 in sales is profit. Understanding margins helps you price competitively and stay profitable.
Margin and markup on the same numbers are never equal — a 100% markup (doubling your cost) only works out to a 50% margin, which trips up more new business owners than almost any other pricing math.
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Gross Profit Margin = (Revenue - Cost of Goods) ÷ Revenue × 100. Markup = (Revenue - Cost) ÷ Cost × 100. These two metrics tell different stories — margin shows what you keep, markup shows what you added to cost.
Grocery stores run 1-3% margins. Software companies enjoy 70-85%. Consulting firms target 30-50%. A 20% margin is healthy for most retail. What's "good" depends on your industry — compare apples to apples.
Many new business owners confuse these. A 50% markup on $10 cost = $15 selling price = 33% margin. Price based on target margin, not arbitrary markup percentages, to ensure profitability.
Use margins to set prices. If you need 25% margin and costs are $75, price at $100. Track margins over time — dropping from 20% to 15% might hurt more than you think when volume stays flat. This calculates gross margin only; net margin includes operating expenses, taxes, and interest, so a business can have healthy gross margin but negative net margin. Always factor in all costs.
Example: Say your revenue is $10,000 and cost of goods is $7,000. Gross profit = $10,000 − $7,000 = $3,000. Margin = $3,000 ÷ $10,000 × 100 = 30%. Markup = $3,000 ÷ $7,000 × 100 = 42.9%.
Margin shows what percentage of your revenue is profit; markup shows how much you added on top of cost. They use the same numbers but different denominators, so a 50% markup on a $10 cost only comes out to a 33% margin, not 50%.
It depends heavily on industry. Grocery stores often run 1-3% margins, software companies can hit 70-85%, and consulting firms typically target 30-50%. Compare your margin to others in your specific industry, not to a universal benchmark.
No — this calculates gross margin, which only accounts for cost of goods sold. Net margin also factors in operating expenses, taxes, and interest, so a business can have a healthy gross margin but a much thinner (or negative) net margin.