Profit Margin Calculator
Calculate gross profit margin percentage, profit in dollars, and markup from revenue and cost.
Margin and markup are the most frequently confused terms in business finance. I've watched people price products using markup math while thinking in margin terms and lose money on every sale without understanding why. Getting these definitions straight is the first step in pricing anything correctly.
Margin and markup are not the same number. A 50% markup produces a 33% margin. A 50% margin requires a 100% markup. Always clarify which metric you're discussing.
Margin vs markup, the critical distinction
Gross margin is profit as a percentage of revenue: (Revenue − Cost) ÷ Revenue. Markup is profit as a percentage of cost: (Revenue − Cost) ÷ Cost. On a product that costs $60 and sells for $100: profit is $40, margin is 40% ($40/$100), markup is 67% ($40/$60). The same $40 profit produces different percentages depending on the denominator. When someone says "we mark up 50%," they mean they add 50% to cost. When they say "we need a 50% margin," they mean half of revenue is profit, which requires a 100% markup.
Target margins by industry
Gross margin benchmarks vary widely by industry. Software/SaaS: 70–80%+. Financial services: 50–60%. Retail apparel: 40–60%. Restaurants: 60–70% on food before labor. Construction: 15–25%. Grocery: 25–30%. Manufacturing: 30–50%. Compare your margin to your industry benchmark, operating below industry average margin consistently signals a pricing, cost, or mix problem worth investigating.
Gross margin vs net margin
Gross margin covers only the direct cost of goods sold (COGS), materials, direct labor, and manufacturing overhead. It does not account for operating expenses (rent, salaries, marketing, G&A). Net margin deducts all expenses including taxes. A business can have a healthy 60% gross margin and a thin or negative net margin if operating expenses are high. Gross margin tells you about product economics; net margin tells you about business economics.
Using margin to set prices
To find the selling price required for a target margin: Price = Cost ÷ (1 − Margin). For a product costing $60 with a 40% target margin: $60 ÷ 0.6 = $100. Don't use the markup formula by mistake: $60 × 1.4 = $84, which produces only a 28.6% margin, not 40%. The division formula is the correct one for setting margin-based prices.
Frequently asked questions
What gross margin do I need to be profitable?
It depends entirely on your operating cost structure. A business with $100,000 in annual operating expenses needs gross profit to exceed $100,000 to break even. If your average margin is 40%, you need $250,000 in revenue. If your margin is 20%, you need $500,000. Higher margins give you more room to cover operating costs and generate net profit.
Can margin be negative?
Yes, selling below cost produces a negative gross margin. This is sometimes done intentionally (loss leaders, customer acquisition) but is unsustainable as a general business model. Negative-margin products must be cross-subsidized by positive-margin products elsewhere in the mix.
How is gross margin different from contribution margin?
Contribution margin subtracts variable costs from revenue, including variable operating costs beyond direct COGS. Gross margin typically deducts only COGS. For businesses where the distinction matters (e.g., where direct labor is variable but not COGS), contribution margin is more useful for break-even and pricing analysis.