Margin Calculator
Profit Margin & Markup Calculator
Total cost to produce or acquire the item.
Report Bug The most expensive mistake in retail is confusing "Markup" with "Margin." If you want a 50% profit margin and you simply add 50% to your cost, you will lose money on every sale. The Margin Calculator prevents this disaster. It helps you calculate the exact Selling Price needed to achieve your desired Gross Margin, ensuring your revenue actually covers your Cost of Goods Sold (COGS) and overhead.
Whether you are an Amazon FBA seller or managing a brick-and-mortar boutique, understanding the math behind your price tag is the first step to sustainability.
📉 The Great Debate: Margin vs. Markup
While they use the same numbers, the formulas work in opposite directions. Margin is profit as a percentage of the Sales Price. Markup is profit as a percentage of the Cost.
Markup % = [(Price - Cost) / Cost] × 100
Variables Defined:
- Price (Revenue): What the customer pays.
- Cost (COGS): What you paid to make/buy the item.
- Gross Profit: The actual dollars you keep (Price - Cost).
🛑 Scenario: The "50%" Misconception
Let's say your product costs $50.00 to manufacture. You want to make a 50% Profit. See how choosing the wrong metric drastically changes your selling price and profit.
| Method A: 50% Markup | Method B: 50% Margin |
|---|---|
|
Calculation
$50 + (50% of $50)
Final Selling Price
$75.00
Actual Margin Achieved
33.3% (Too Low!)
|
Calculation
$50 / (1 - 0.50)
Final Selling Price
$100.00
Actual Margin Achieved
50.0% (Target Hit)
|
| The Gap: Using the wrong formula cost you $25.00 in profit per unit! | |
Strategic Insight: In the US retail industry, "Margin" is the language of investors and accountants. "Markup" is often just a quick tool for pricing on the warehouse floor. Always run your P&L based on Margin.
US Retail Standards & Terminology
- Keystone Pricing: A traditional US retail standard where a store doubles the wholesale cost to determine the price. (Cost $50 -> Price $100). This equals a 100% Markup or a 50% Margin.
- Gross vs. Net: This calculator shows Gross Margin (Revenue - COGS). It does not include operating expenses like rent, payroll, or marketing. Your Net Margin will always be lower.
- Amazon FBA Fees: If you sell on Amazon, your "Cost" must include not just the manufacturing, but also the Amazon Referral Fee and FBA Fulfillment Fee to get an accurate margin calculation.
Frequently Asked Questions (FAQs)
Why is my Margin always lower than my Markup?
Mathematically, Margin can never exceed 100% (because cost cannot be less than zero), whereas Markup can be infinitely high (e.g., 500% markup). Margin represents the slice of the pie that is profit; Markup represents how much larger the pie is compared to the ingredients.
What is a "Good" profit margin?
This varies by industry. In US Grocery retail, margins are razor-thin (2% - 5%). In Fashion/Apparel, standard margins are 50% - 60%. In SaaS (Software), margins can exceed 80%. Know your specific industry benchmark.
How do I calculate the price if I know the Cost and Target Margin?
Use the "Gross Margin Pricing Formula":
Selling Price = Cost / (1 - Desired Margin %).
Example: Cost $10, Margin 20% (0.20) -> $10 / 0.80 = $12.50.
Does a 100% Markup equal a 100% Margin?
No! A 100% Markup means you doubled the cost (Cost $10 -> Price $20). The profit is $10. Since $10 profit is half of the $20 price, your Margin is 50%.
How do discounts affect my margin?
Discounts kill margins faster than you think. If you have a 30% Gross Margin and you offer a 20% discount to customers, you aren't just losing "some" profit; you are wiping out nearly 66% of your total bottom line profit.
