Profit Margin Calculator

Formulas

Margin vs markup

Margin is profit as a percentage of selling price. Markup is profit as a percentage of cost. Confusing them is the fastest way to under-price. A 40% margin is a 66.67% markup — same money, different denominator.

Examples

Common pricing mistakes

• Including VAT in cost or price — always work in net figures.
• Forgetting variable costs like payment processing, packaging and platform fees when setting price.
• Treating a target markup as if it were a target margin.

Questions

• What is profit margin?

  Profit margin is gross profit as a percentage of selling price. For example, if you sell something for £50 and it costs you £30, the £20 profit is 40% of the £50 price.

• What is markup?

  Markup is gross profit as a percentage of cost. The same £20 profit on a £30 cost is a 66.67% markup.

• What is the difference between margin and markup?

  Margin uses selling price as the denominator; markup uses cost. The same profit will always look like a smaller percentage as margin than as markup.

• How do I calculate selling price from target margin?

  Divide your cost by (1 − target margin / 100). For example, a £30 cost with a 40% target margin gives a £50 selling price.

• Why is my margin lower than my markup?

  Margin uses a larger denominator (selling price) than markup (cost), so the same profit is always a smaller percentage when expressed as margin.

• Should I include VAT in profit margin calculations?

  Use net (ex-VAT) figures for both cost and selling price. VAT is collected on behalf of HMRC — it is not your revenue or your cost.

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