Margin Calculator
A margin calculation shows how much of a selling price remains as profit after the cost of a product or service is considered. It is especially useful for pricing decisions because profit margin is based on the selling price, which makes it different from markup.
Quick Answer
Profit Margin = (Selling Price β Cost) Γ· Selling Price Γ 100. If an item costs $60 and sells for $100, profit is $40 and the margin is 40%.
Margin Inputs Explained
Cost: The amount spent to acquire or produce the item. Selling price: The amount charged to the customer. Profit: Selling price minus cost. For a full business analysis, other expenses such as shipping, salaries, rent, payment fees, and taxes may also need to be considered.
How to Use the Calculator
- Enter the product or service cost.
- Enter the selling price.
- Calculate the dollar profit and percentage margin.
- Compare the result with your pricing target and other costs.
Worked Examples
Example 1: Cost $60, selling price $100. Profit = $40. Margin = 40 Γ· 100 Γ 100 = 40%.
Example 2: Cost $80 and selling price $125. Profit is $45, so margin is 36%.
Example 3: Cost $30 and selling price $50. Profit is $20 and margin is 40%.
Margin Examples
| Cost | Selling Price | Profit | Margin |
|---|---|---|---|
| $50 | $75 | $25 | 33.33% |
| $60 | $100 | $40 | 40% |
| $80 | $125 | $45 | 36% |
| $30 | $50 | $20 | 40% |
Margin vs Markup
Margin and markup use different denominators. Margin divides profit by the selling price, while markup divides profit by cost. For example, a $60 cost and $100 selling price produces a 40% margin but a 66.67% markup. Confusing these terms can lead to incorrect pricing targets.
Common Mistakes
- Dividing profit by cost when you intend to calculate margin.
- Calling markup and margin the same percentage.
- Ignoring costs that should be included in the business's definition of product cost.
- Assuming a product margin is the same as the company's final net profit margin.