Calculate the profit margin of making, trading products, or doing business in general. Please provide any two of the following to calculate the rest values.
| Margin | 25.00% |
| Profit | $40.00 |
| Markup | 33.33% |
| Cost | $120.00 |
| Revenue | $160.00 |
Cost is what the product costs you to make or buy. Revenue is the money you receive when you sell it. Profit is what remains after deducting cost from revenue. Margin is profit as a percentage of revenue. Markup is profit as a percentage of cost.
Profit = Revenue − Cost. Margin = Profit ÷ Revenue × 100. Markup = Profit ÷ Cost × 100. To set a price for a target margin: Revenue = Cost ÷ (1 − Margin ÷ 100).
Worked example: an item costs $120 and sells for $160. Profit = $40. Margin = 40 ÷ 160 = 25%. Markup = 40 ÷ 120 = 33.33%. To reach a 40% margin on the same cost you would charge 120 ÷ 0.60 = $200.
People often confuse the two because they use the same profit figure with different bases. Margin can never reach 100%, while markup can be any size. A 50% markup is only a 33.3% margin, and a 100% markup (doubling the cost) is a 50% margin. Retailers usually talk in markup; investors and accountants usually talk in margin.
Gross margin uses only the direct cost of goods. Operating margin also subtracts running costs such as rent, wages and marketing. Net margin subtracts everything, including interest and taxes. This calculator gives a gross margin for one product or deal; healthy levels vary widely, from a few percent in grocery retail to over 70% in software.
In investing, "buying on margin" means borrowing from a broker to buy securities. The amount you must put up is Stock price × Number of shares × Margin requirement. For 100 shares at $20 with a 50% requirement you need $1,000 of your own money. This is a different idea from profit margin, and margin trading magnifies both gains and losses.
What is a good profit margin? It depends on the industry; compare with similar businesses.
Can margin be negative? Yes, when you sell below cost.
Why use margin rather than markup for pricing? Margin tells you directly how much of every sale you keep.