Margin Calculator

Use our free margin calculator to calculate your margin and profits. See how your margin and profits change as your markup changes. Understand how different margins will impact your profit.

Choose two inputs (cost, margin, revenue, or profit) and modify the values to see results. Click the labels to change the input type.
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Cost $100
Margin $50
Revenue $200
Profit $100

What's included in a margin calculator?

Choose two inputs — cost, margin, revenue, or profit — and this calculator will calculate the other two. Click on the input labels to change the input type.

How to calculate your margin

For the mathematically inclined, the margin calculation looks like this:

Margin=Price or RevenueCostPrice or Revenue\textrm{Margin} = \frac{\textrm{Price or Revenue} - \textrm{Cost}}{\textrm{Price or Revenue}}

where,

Profit=Price or RevenueCost\textrm{Profit} = \textrm{Price or Revenue} - \textrm{Cost}

Because the difference between price and cost is profit, we can also write the margin formula as:

Margin=ProfitPrice or Revenue\textrm{Margin} = \frac{\textrm{Profit}}{\textrm{Price or Revenue}}

Margin is a percentage that is always less than or equal to 100%. When margin is 100%, cost is $0. When margin is 0%, price is equal to cost and profit is $0. Margin falls into the negative territory when you cannot recoup your costs and must sell at a price that is lower than cost.

If you are interested in understanding how markup is calculated, the formula looks like this:

Markup=Price or RevenueCostCost\textrm{Markup} = \frac{\textrm{Price or Revenue} - \textrm{Cost}}{\textrm{Cost}}
Price or Revenue=Cost×(1+Markup)\textrm{Price or Revenue} = \textrm{Cost} \times (1 + \textrm{Markup})

The markup is a percentage that represents how much you will charge above costs. If the price is the same as cost, then the markup is 0%. If the price is double the cost, the markup is 100%.

Example Let's take an example to illustrate how margin, profit, and prices are calculated.

A bar of soap costs $5 to produce. This includes the cost of supplies such as oils, fragrance, and more. You decide that you will markup the soap at 100%. What is your price, profit, and margin?

Let's look at price first.

Price or Revenue=Cost×(1+Markup)\textrm{Price or Revenue} = \textrm{Cost} \times (1 + \textrm{Markup})

Price=$5×(1+100%)\textrm{Price} = \$5 \times (1 + 100\%)

Price=$5×(2)=$10\textrm{Price} = \$5 \times (2) = \$10

Price is $10. What is profit?

Profit=Price or RevenueCost\textrm{Profit} = \textrm{Price or Revenue} - \textrm{Cost}

Profit=$10$5=$5\textrm{Profit} = \$10 - \$5 = \$5

Profit is $5.

Now let's look at margin.

Margin=ProfitPrice\textrm{Margin} = \frac{\textrm{Profit}}{\textrm{Price}}

Margin=$5$10=50%\textrm{Margin} = \frac{\$5}{\$10} = 50\%

Margin is 50%.

Why is margin important?

Margin measures how efficiently cost is converted into sales. A high margin means that this process is very effective. For every dollar spend on costs, a lot is gained from sales. A low margin means that a lot of money is being spent but you are not getting a lot for it.

Terminology

The terms margin, gross margin and profit margin are often blurred together. These terms differ primarily because of what is being included in costs. All of them use the same price or revenue figure. Our calculator is very simple and just looks at revenue and costs. You can use any cost figure you want.

Gross margin

Gross margin looks only at the difference between price or revenues and the cost of goods sold or COGS.

What is COGS? COGS is the cost directly required to produce what you are selling, whether this is a tote bag, a bar of soap, a book, etc. "Directly" is important here because COGS does not include overhead such as the cost of paying for accounting software, office furniture, or legal fees. That's because accounting software, furniture, and legal advice are not directly used for the production of bags, soap, and books.

One way to think about COGS is to consider what costs you need to produce one more item. For example, to make one more tote bag, you would need fabric, thread, glue, etc. These costs are included in COGS.

Gross margin profit is the dollar difference between price and COGS. Gross margin is the percentage difference.

Gross margin profit=PriceCOGS\textrm{Gross margin profit} = \textrm{Price} - \textrm{COGS}
Gross margin=PriceCOGSPrice\textrm{Gross margin} = \frac{\textrm{Price} - \textrm{COGS}}{\textrm{Price}}

Profit margin

Profit margin, also known as net profit margin, includes all of your costs, including COGS and overhead costs such as legal fees, office furniture, and accounting software costs. Every single expense is included, including taxes. If you are a business owner, this is how much money left to go into your pocket.

Profit or net profit is the dollar difference between price and all expenses. Profit margin is the percentage difference.

Profit=Price or RevenueAll expenses\textrm{Profit} = \textrm{Price or Revenue} - \textrm{All expenses}
Profit margin=Price or revenueAll expensesPrice or revenue\textrm{Profit margin} = \frac{\textrm{Price or revenue} - \textrm{All expenses}}{\textrm{Price or revenue}}

What is a good margin?

Gross margins and profit margins vary greatly by industry. A good margin is one that is higher than average in your industry. Below is a chart of gross margins and profits margin by industry based on financials published by publicly traded companies. As you can see, the gross margin can range from around 10% to over 70%. The net profit margin ranges from around negative 10% to 30%. These ranges can help you gauge whether your margins are relatively good or if they can be improved.

Sources

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