Calculate gross margin and pricing performance instantly
Profit margin and markup are two different ways to express profitability, and confusing them leads to serious pricing mistakes.
Profit margin = (Revenue − Cost) ÷ Revenue × 100. It shows profit as a percentage of selling price.
Markup = (Revenue − Cost) ÷ Cost × 100. It shows how much above cost you sell.
If you buy a product for $60 and sell it for $100: margin is 40% but markup is 67%. The same product, two different numbers. Retailers typically think in margin; manufacturers often think in markup.
What counts as a good margin varies enormously by industry:
| Industry | Typical gross margin |
|---|---|
| Software / SaaS | 60–80% |
| Financial services | 40–60% |
| Retail (general) | 20–40% |
| Restaurants | 60–70% (gross), 3–9% (net) |
| Grocery | 20–30% |
| Construction | 15–25% |
| Manufacturing | 10–20% |
Note: Gross margin (revenue minus cost of goods sold) is very different from net margin (profit after all expenses). A restaurant can have 65% gross margin and only 5% net margin once rent, labour, and utilities are paid.
If you know your cost and want to achieve a specific margin, the pricing formula is:
Price = Cost ÷ (1 − Desired Margin)
To achieve a 40% margin on a product that costs $30: Price = $30 ÷ (1 − 0.40) = $30 ÷ 0.60 = $50. This is the correct formula — many businesses mistakenly apply the margin percentage as markup, resulting in prices that are too low.
Margin has multiple levels depending on which costs are included. Gross margin subtracts only the direct cost of goods sold. Operating margin also subtracts operating expenses like rent, salaries, and marketing. Net margin subtracts everything including interest and taxes. The calculator above calculates gross margin — the most commonly used metric for pricing decisions.
Subtract cost from revenue to get profit, then divide profit by revenue and multiply by 100. A product sold for $200 with a cost of $120 has a profit of $80 and a margin of 40%.
It depends entirely on the industry. Software companies routinely achieve 70%+ gross margins. Grocery stores operate on 20–25%. What matters is whether your margins cover all your operating costs and leave adequate net profit. Compare your margins to industry benchmarks, not to other industries.
Margin is calculated on the selling price; markup is calculated on the cost. A 50% markup does not produce a 50% margin — it produces a 33% margin. To convert: Margin = Markup ÷ (1 + Markup). A 50% markup = 50 ÷ 150 = 33.3% margin.
Yes — when cost exceeds revenue, the margin is negative, meaning you lose money on every sale. This is unsustainable unless offset by other revenue or a deliberate loss-leader strategy.
Either increase revenue (raise prices, sell more volume, improve product mix) or reduce costs (negotiate supplier pricing, improve efficiency, reduce waste). Raising prices has the most immediate impact — a 1% price increase typically improves net margin by 8–11% according to McKinsey research, because it flows directly to profit without increasing costs.