Profit Margin

How it works

This calculator follows standard business definitions and updates instantly in your browser. The core relationship is that Profit is what remains after costs are subtracted from sales. From there, margin and markup express that profit as a percentage—just with different denominators.

Core formulas

• Profit = Revenue − Cost
• Profit Margin (%) = (Profit ÷ Revenue) × 100
• Markup (%) = (Profit ÷ Cost) × 100

Variable definitions

• Revenue/Sales: The money you bring in from sales during a period.
• Cost: The costs included in your calculation (for example, product cost, labor, or service delivery cost).
• Profit: Revenue minus Cost (can be negative for a loss).
• Profit Margin: Profit as a share of Revenue; useful for measuring how much you keep from each sale.
• Markup: Profit as a share of Cost; useful for pricing (how much you add on top of cost).

When to use margin vs markup

If you’re analyzing business performance, compare margin over time (monthly, quarterly) or against peers in the same industry. If you’re building pricing rules, markup is often easier because it relates directly to cost. These metrics can move differently if costs or prices change, so reviewing both gives a more complete story.

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Edge rules used here: Revenue must be greater than 0 to compute margin, and Cost must be greater than 0 to compute markup. Negative profit is supported and produces negative percentages when mathematically valid.

Use cases

• Pricing a new product: Start from your cost, decide a target markup, and use the result to estimate the selling price and expected margin.
• Monitoring promotions: Enter discounted revenue and the same cost to see how promotions compress your profit margin—and whether volume must increase to compensate.
• Service business quoting: Combine revenue from a quote and expected delivery cost to verify the margin stays above your minimum threshold.
• Comparing suppliers: Keep revenue constant and test different costs to see how supplier price changes impact margin and markup.
• Loss diagnosis: If profit is negative, calculate the negative margin to quantify how far you are from break-even and prioritize fixes (price, cost, or mix).

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Examples

Example 1: Normal positive margin

Revenue = 2,500 and Cost = 1,700. Profit = 2,500 − 1,700 = 800. Profit Margin = (800 ÷ 2,500) × 100 = 32%. Markup = (800 ÷ 1,700) × 100 ≈ 47.06%. Interpretation: you keep about $0.32 profit per $1 of sales, and you add roughly 47% on top of cost.

Example 2: High margin scenario

Revenue = 10,000 and Cost = 3,000. Profit = 7,000. Profit Margin = (7,000 ÷ 10,000) × 100 = 70%. Markup = (7,000 ÷ 3,000) × 100 ≈ 233.33%. Interpretation: strong pricing power or very low costs relative to price; the markup is high because the profit is much larger than the cost base.

Example 3: Loss / negative margin

Revenue = 5,000 and Cost = 5,800. Profit = −800. Profit Margin = (−800 ÷ 5,000) × 100 = −16%. Markup = (−800 ÷ 5,800) × 100 ≈ −13.79%. Interpretation: each $1 of sales is losing about $0.16 in profit using these costs—either raise price, reduce costs, or change the offer.

Common Mistakes

• Mixing up margin and markup: Margin uses revenue in the denominator, markup uses cost—so the percentages are not interchangeable.
• Using revenue = 0: Profit margin requires revenue > 0; otherwise the percentage is undefined.
• Using cost = 0 for markup: Markup requires cost > 0; a zero cost breaks the markup formula.
• Confusing gross vs net: If you omit overhead or include taxes inconsistently, you’ll compare the wrong margin to benchmarks.
• Misreading negative percentages: A negative margin means a loss per unit of sales—don’t interpret it as “small” just because the number is near zero.

Quick Tips

• Track trend lines: A stable margin over time is often more informative than a single snapshot.
• Control variable costs: Reducing cost per unit usually improves both margin and markup without changing price.
• Test price sensitivity: Small price increases can produce outsized margin gains if demand holds.
• Compare by category: Different products/services may have different margin targets—avoid one-size-fits-all expectations.
• Benchmark carefully: “Good” margins vary widely by industry; compare like-for-like businesses and similar time periods.

Accuracy & Notes

• Accuracy/Method: Calculated locally in your browser.
• Rounding/precision policy: Display values are rounded to your selected decimals; internal calculations use full precision.
• Privacy-first: No data is sent to a server.
• Last Updated: January 19, 2026

Sources & References

• Standard business finance definitions (revenue, cost, profit)
• Managerial accounting margin/markup conventions
• Basic percentage and ratio computation rules
• Common pricing and profitability analysis practices

Note: This calculator supports negative profit (loss). Revenue must be greater than 0 to compute margin; cost must be greater than 0 to compute markup.

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