Calculate profit margin, markup, and pricing — live as you type. For any business.
Profit margin is the single most important number in business. It tells you what percentage of every dollar you earn actually becomes profit. Yet most people calculate it wrong — confusing margin with markup, or forgetting to include all their costs.
This is where most people go wrong. Margin and markup are NOT the same thing:
Example: Buy for $60, sell for $100. Margin = 40%. Markup = 66.7%. If someone says "I want a 40% margin" and you add 40% to cost ($60 × 1.40 = $84), you only get 28.6% margin! The correct formula is: Price = Cost ÷ (1 - 0.40) = $100.
It varies wildly by industry:
The most common mistake: adding your target margin percentage to cost. This gives you markup, not margin. The correct formula:
Selling Price = Total Cost ÷ (1 - Target Margin %)
Examples:
Profit Margin = (Revenue - Cost) / Revenue × 100. If you sell for $100 and it costs $60, margin = (100-60)/100 × 100 = 40%.
Margin = profit as % of selling price. Markup = profit as % of cost. Buy for $60, sell for $100: Margin = 40%, Markup = 66.7%. They are NOT the same number.
Depends on industry. Restaurants: 3-5%. Retail: 25-50% gross. SaaS: 70-85% gross. Consulting: 50-70%. Generally, gross margin above 50% and net margin above 15% is healthy.
Net Profit Margin = Net Profit / Revenue × 100. Net Profit = Revenue minus ALL expenses. Example: $500K revenue, $375K expenses = $125K net profit = 25% net margin.
Price = Cost / (1 - 0.30) = Cost / 0.70. If cost is $70: Price = $70 / 0.70 = $100. Common mistake: adding 30% to cost ($91) only gives 23% margin!
Because they use different bases. Margin uses selling price, markup uses cost. A 50% markup gives only 33.3% margin. This confusion causes many businesses to underprice.
Gross margin only subtracts COGS (direct product costs). Net margin subtracts ALL expenses (rent, salaries, marketing, taxes). Net margin is always lower.
(1) Raise prices, (2) Reduce COGS with cheaper suppliers, (3) Cut fixed costs, (4) Focus on high-margin products, (5) Reduce waste and returns. Even a 5% price increase can double your profit.