How does the Profit Margin Calculator work?
Margin = (revenue − cost) ÷ revenue × 100. Markup relates the same profit to cost: markup = profit ÷ cost × 100.
Background & details
How to read the result
Profit margin tells you what share of your selling price stays as profit after costs. A 40 % margin means you keep 40 cents of every dollar you take in. The markup shown alongside answers a different question – by what percentage you mark up your cost. Both numbers describe the same profit, just from two viewpoints.
Typical values by industry
- Grocery retail: often just 1–5 % – volume does the work.
- Restaurants & cafés: 5–15 % after all costs.
- Trades & construction: 5–15 %.
- Consulting & agencies: 15–40 %.
- Software (SaaS): 60–80 % gross margin on a single sale.
Common mistakes
The biggest mistake is confusing margin and markup. A 30 % markup does not give you a 30 % margin – it gives you about 23 %. The second mistake is mixing gross and net figures. Always calculate without VAT or sales tax, because that tax is a pass-through item that isn't yours to keep. Third, many people forget indirect costs – shipping, payment fees, returns, storage. A margin based only on the bare purchase price looks great but is unrealistic.
Practical tips
Use margin to compare products and sanity-check prices, not to measure your company's overall profitability – for that you need profit in absolute terms across all sales and fixed costs. A high-margin product that barely sells earns less in total than a low-margin product with high volume. Always watch the interplay between margin and units sold.
When (not) to use it
Profit margin is ideal for pricing, range comparisons and quick plausibility checks. It is not the right tool for finding the number of units at which you cover your fixed costs – use the break-even calculator for that. And to judge the return on an investment, look at ROI rather than margin.