Profit margin is the single most important number in your business. Here’s the formula, the three types you need to know, and how to get it right every time.
Profit margin measures how much of every dollar of revenue you keep as profit. The formula is deceptively simple:
Profit margin = (Profit ÷ Revenue) × 100
Where profit is your revenue minus your costs, and revenueis the total sale price the customer paid you. Multiply by 100 to turn the decimal into a percentage. That percentage is what people mean when they say a business “runs on a 30% margin.”
“Profit margin” actually comes in three flavours, depending on which costs you subtract. Using the wrong one is how businesses convince themselves they’re profitable when they’re not.
A product can show a great 64% gross margin and still leave you with a 5% net margin once rent, ads and taxes are paid. Always be clear about which margin you’re quoting.
By far the most common error is dividing profit by cost instead of by revenue. That gives you markup, not margin, and markup is always the bigger, friendlier-looking number. A seller who thinks they’re running a 50% margin when it’s really a 50% markup (33.3% margin) is quietly underpricing every order.
The second most common mistake, especially on marketplaces, is forgetting to count platform fees as a cost. On Etsy, Amazon or eBay, fees can eat 10–30% of revenue — enough to turn a comfortable margin into a loss. Our marketplace calculators build those fees in automatically.
Rather than do the arithmetic by hand, the free profit margin calculator works it out in four different ways: from cost and markup, cost and sale price, cost and a target margin, or sale price and margin. Enter any two numbers and it fills in the rest — including the conversion between margin and markup that trips so many people up.
Margin vs Markup
Why they're not the same, the formulas for each, and a conversion table.
How to Price a Product
A step-by-step pricing method that protects your margin from day one.
What Is a Good Profit Margin?
Healthy margin benchmarks by industry and how to know where you stand.
How to Calculate Break-Even Point
The break-even formula, contribution margin, and how many units you must sell.
Cost of Goods Sold (COGS)
What counts as COGS, what doesn't, and the formula to calculate it.
Gross Profit vs Net Profit
The difference between the two, with a worked income-statement example.
Average Order Value (AOV)
The AOV formula, why it matters, and proven ways to increase it.
How Discounts Affect Profit Margin
Why a small discount cuts profit hard, and the extra volume needed to break even.
Contribution Margin
What contribution margin is, the formula, and how it drives break-even.
Fixed vs Variable Costs
The difference, why it matters for pricing, and how to classify your costs.
Keystone Pricing
The classic 2x markup rule — what it is, the margin it gives, and when to use it.
Retail vs Wholesale Pricing
How to price for both channels without eroding your retail margin.
How to Calculate ROI
The return on investment formula with worked examples for stock and ads.
How to Increase Profit Margin
Ten practical, tested ways to widen your margin without losing sales.
Profit Margin Calculator
Sale price, margin, markup, or cost — four modes for any scenario.
Etsy Profit Calculator
Net profit after Etsy listing, transaction, payment, and Offsite Ads fees.
Amazon FBA Profit Calculator
Net profit, margin and ROI after Amazon referral, fulfillment and storage fees.
eBay Profit Calculator
Net payout after eBay's final value fee, per-order charge and international fees.
Shopify Profit Calculator
Real profit per sale after Shopify payment processing, surcharges and plan share.
Profit margin = (profit ÷ revenue) × 100. Profit is your revenue minus costs, and revenue is the total sale price before any deductions. For example, if you sell an item for $50 and it cost you $30, your profit is $20 and your margin is ($20 ÷ $50) × 100 = 40%.
Gross margin only subtracts the direct cost of goods sold. Operating margin also subtracts operating expenses like rent, wages and marketing. Net margin subtracts everything, including taxes and interest, and is the truest measure of profitability. The same sale can show a healthy gross margin but a thin net margin once all costs are counted.
No. Margin is profit as a percentage of the sale price, while markup is profit as a percentage of the cost. A product bought for $10 and sold for $15 has a 50% markup but only a 33.3% margin. Confusing the two is one of the most common — and most expensive — pricing mistakes.
First find the sale price: sale price = cost × (1 + markup ÷ 100). Then margin = (sale price − cost) ÷ sale price × 100. For a $10 cost with 50% markup, the sale price is $15 and the margin is 33.3%. The calculator on our homepage does this conversion instantly in either direction.
Revenue is the total amount the customer pays you for the sale, before you deduct any costs or fees. On a marketplace like Etsy or Amazon, remember that platform fees are a cost, not a reduction of revenue — so include the full sale price (and any shipping the buyer paid) as revenue, then subtract fees as a separate cost.
No. Because margin is profit divided by the sale price, and profit can never exceed the sale price, margin maxes out just below 100%. Markup, on the other hand, has no ceiling — a $1 item sold for $10 has a 900% markup but a 90% margin.