Enter your total revenue and total cost to calculate the profit margin percentage.
A month with 48,000 of revenue and 31,200 of cost of goods sold.
A 35 percent margin: 35 cents of every unit of revenue is left after the cost of what you sold.
Discounting comes out of the margin, not the price, so a small discount needs a surprisingly large volume increase just to stand still. Each cell is the extra unit volume needed to keep the same total gross profit: extra volume = discount ÷ (margin − discount) × 100.
| Your margin | 5% off | 10% off | 15% off | 20% off |
|---|---|---|---|---|
| 20% | +33.3% | +100.0% | +300.0% | impossible |
| 30% | +20.0% | +50.0% | +100.0% | +200.0% |
| 40% | +14.3% | +33.3% | +60.0% | +100.0% |
| 50% | +11.1% | +25.0% | +42.9% | +66.7% |
| 60% | +9.1% | +20.0% | +33.3% | +50.0% |
A 20 percent discount on a 20 percent margin is marked impossible because it removes the entire margin — no volume recovers it, since every additional unit now contributes nothing. This is the arithmetic behind the advice never to discount a thin-margin product.
Put only the direct cost of goods in and you get gross margin — the health of the product itself. Add operating expenses such as rent, salaries and software and you get operating margin — the health of the business. Add interest and tax on top and you get net margin. All three are legitimate and they are wildly different numbers for the same company, so state which one you mean whenever you quote a margin, and use the same definition every month or the trend is meaningless.
Margin divides profit by the selling price; markup divides it by the cost. An item costing 65 and selling for 100 carries a 35 percent margin and a 53.8 percent markup. Both describe the same 35 of profit. Pricing from a target margin using a markup percentage is a common and expensive error: applying a 35 percent markup to a 65 cost gives 87.75, which is only a 25.9 percent margin. To hit a margin target, divide instead — cost ÷ (1 − target margin), so 65 ÷ 0.65 = 100.
A margin only means something against its own industry and against your own history. Volume businesses run thin margins and survive on turnover; specialist services run fat margins on few transactions. The useful comparisons are your margin last quarter, your margin by product line, and your margin by customer segment — the last of these frequently shows that a small group of accounts is carrying the whole business while another group is served at a loss.
If cost exceeds revenue the margin is negative and the calculator will show it. That is real information, most often surfacing when discounting or shipping subsidies have quietly overtaken the contribution on a line. The calculator rejects only a revenue of zero, because dividing by it has no answer.
The denominator. Margin is profit divided by revenue; markup is profit divided by cost. For a 65 cost sold at 100, the margin is 35 percent and the markup is 53.8 percent. Margin can never exceed 100 percent, markup can be any size, and confusing the two systematically underprices whatever you sell.
If you are measuring the profitability of a sale, yes — anything you pay because that specific sale happened belongs in the cost. Card-processing fees, marketplace commission and outbound shipping are the three most often left out, and on thin-margin goods they are the difference between a profitable line and a loss-making one.
Divide the cost by one minus the target expressed as a decimal. For a 40 percent margin on a cost of 65, the price is 65 ÷ 0.60 = 108.33. Adding 40 percent to the cost gives 91, which is only a 28.6 percent margin.
Margin is a share of revenue, so with no revenue there is nothing to take a share of and the division has no result. A period with costs and no sales has a loss, but not a margin.
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