Small business
How to Calculate Profit Margin
A small-business guide to gross profit margin, markup, pricing checks, and why discounts can quietly squeeze profitability.
Profit margin shows what share of selling price remains after cost. Use the profit margin calculator to enter selling price and unit cost, then compare margin and markup.
The short version
The gross profit margin formula is:
Profit margin = (selling price - cost) / selling price x 100
Markup uses cost as the baseline. Margin uses selling price as the baseline. That difference is why 50% markup is not the same as 50% margin.
Try it with your own numbers
Use the profit margin calculator to calculate gross profit, margin, and markup from the same inputs. Use the discount calculator before running promotions so you can see how a lower sale price affects margin.
How the calculation works
First subtract cost from selling price to get gross profit. Then divide gross profit by selling price and multiply by 100.
If a product sells for 80 and costs 50, gross profit is 30. Margin is 30 / 80 x 100 = 37.5%.
Markup is different: 30 / 50 x 100 = 60%.
A worked example
Suppose:
- Selling price: 120
- Unit cost: 72
- Gross profit: 48
Margin = 48 / 120 x 100 = 40%.
Markup = 48 / 72 x 100 = 66.67%.
Both numbers are true, but they answer different questions.
Watch-outs
- Dividing by cost when you meant margin.
- Ignoring payment fees, shipping, returns, or packaging.
- Using gross margin as if it were net profit.
- Applying discounts without checking the new margin.
- Comparing products with different cost definitions.
How to read the result
Use gross margin for product pricing, quote checks, simple business comparisons, and promotion planning. It is not the same as net profit because overheads, wages, tax, rent, and other operating costs still need to be paid.
Tools mentioned in this article
- Discount calculator
- VAT calculator
- Percentage calculator
- Percentage increase calculator
- Business calculators
Reader questions
What is a good profit margin?
It depends on the industry, product, volume, overheads, and risk. A calculator can show the number, but it cannot say whether it is commercially enough.
Is margin before or after tax?
Gross margin is usually before tax and overheads. Net margin is after more business costs.
Why is markup higher than margin?
Markup divides profit by cost. Margin divides profit by selling price. The denominators are different.
Can margin be negative?
Yes. If cost is higher than selling price, the product is sold at a gross loss.
