Profit Margin Calculator

Margin and markup: what is the difference?

Both tell you how much you earn on a product, but they are measured from different prices. Markup is profit as a percentage of the cost price. Margin is profit as a percentage of the sale price. Because the sale price is bigger than the cost, the margin percentage is always smaller than the markup percentage for the same item.

Example: you buy a shirt for Rs. 800 and sell it for Rs. 1,000. Your profit is Rs. 200. The markup is 200 ÷ 800 = 25%, but the margin is 200 ÷ 1,000 = 20%.

Formulas

• Profit = Sale price − Cost price
• Markup % = Profit ÷ Cost price × 100
• Margin % = Profit ÷ Sale price × 100
• Sale price for a target margin = Cost price ÷ (1 − Margin % ÷ 100)

A common mistake

Many shopkeepers add 20% to the cost and think they are making a 20% margin. Adding 20% to Rs. 800 gives Rs. 960, which is only a 16.7% margin. If your rent, salaries and bills need a 20% margin, use the second option of this calculator to find the right price: Rs. 800 ÷ 0.8 = Rs. 1,000.

What margin is good?

It depends on the trade. Grocery and fast-moving goods often work on thin margins with high sales, while clothing, electronics accessories and services usually need higher margins. Check that your margin covers all running costs — rent, staff, electricity, transport and wastage — and still leaves a profit.