Profit Margin Calculator
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Use this free profit margin calculator to quickly calculate your profit, profit margin, and markup percentage. Perfect for small businesses, online sellers, freelancers, and anyone who needs to understand pricing and profitability.
Please enter a selling price to avoid division by zero
Quick Example
If you buy a product for $50 and sell it for $80:
- Profit: $30.00
- Profit Margin: 37.50%
- Markup: 60.00%
What Is Profit Margin?
Profit margin is a critical financial metric that measures how much profit a business makes from each sale relative to the selling price. It's expressed as a percentage and indicates the efficiency of your pricing strategy and cost management. Understanding profit margin is essential for:
- Pricing Decisions: Setting appropriate selling prices that ensure profitability
- Business Planning: Forecasting revenue and planning for growth
- Cost Analysis: Identifying areas where costs can be optimized
- Competitive Analysis: Comparing your profitability with industry standards
- Investment Evaluation: Assessing the viability of new products or services
For e-commerce businesses, profit margin helps determine whether products are worth selling after accounting for all costs, including manufacturing, shipping, and platform fees. Small businesses use profit margins to ensure they're charging enough to cover overhead and generate sustainable income. Freelancers rely on profit margin calculations to set project rates that account for their time, expenses, and desired income level.
Profit Margin Formula
1. Profit Calculation
Profit = Selling Price - Cost Price
Profit is the absolute dollar amount you earn from each sale after subtracting the cost of the item.
2. Profit Margin (%)
Profit Margin = (Profit / Selling Price) × 100
Profit margin shows what percentage of the selling price is profit. This metric helps you understand profitability relative to revenue. For example, a 30% profit margin means 30 cents of every dollar in sales is profit.
3. Markup (%)
Markup = (Profit / Cost Price) × 100
Markup shows what percentage you add to the cost price to arrive at the selling price. This is useful for setting prices based on cost. For example, a 60% markup on a $50 item means you're adding $30 to the cost, resulting in an $80 selling price.
Practical Example
Let's say you purchase a product for $50 and sell it for $80. Here's how the calculations work:
Profit
$30.00
$80 - $50 = $30
Profit Margin
37.50%
($30 / $80) × 100 = 37.50%
Markup
60.00%
($30 / $50) × 100 = 60.00%
This means 37.5% of your selling price is profit, and you've marked up the cost by 60% to achieve this price point.
Frequently Asked Questions
What is a good profit margin?
A good profit margin varies by industry, but generally:
- 20%-40%: Considered healthy for most retail and e-commerce businesses
- 40%+: Excellent margin, common in software, consulting, or high-value products
- 10%-20%: Acceptable but may need cost optimization or price adjustment
- Below 10%: May indicate pricing issues or high costs that need attention
Service-based businesses and freelancers typically target 30%-50% profit margins, while product-based businesses often operate with 15%-30% margins after accounting for materials, manufacturing, and overhead costs.
What is the difference between profit margin and markup?
The key difference is the base used for calculation:
- Profit Margin: Calculated as a percentage of the selling price. Shows how much of each sale is profit. Always a smaller number than markup for the same transaction.
- Markup: Calculated as a percentage of the cost price. Shows how much you're adding to the cost to arrive at the selling price. Always a larger number than profit margin.
For example, with a $50 cost and $80 selling price: Profit margin is 37.5% (of $80), while markup is 60% (of $50). Profit margin is more useful for understanding profitability relative to revenue, while markup is better for setting prices based on cost.
Is this profit margin calculator free?
Yes! Our profit margin calculator is 100% free to use. It's a browser-based tool that runs entirely in your web browser—no registration required, no hidden fees, and no limits on usage. All calculations happen instantly on your device, ensuring your business data remains private and secure. You can use it as often as needed for any pricing or profitability analysis without any restrictions.
How do I use negative profit margins?
A negative profit margin (shown in red) indicates a loss—you're selling for less than the item costs. This might occur during:
- Clearance sales or liquidation events
- Strategic loss-leader pricing to attract customers
- Pricing errors that need immediate correction
- Market testing or competitive response situations
While occasional negative margins can be strategic, consistently selling at a loss is unsustainable. Use this calculator to identify these situations and adjust your pricing strategy accordingly.
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