Does not include operating costs (rent, utilities, salaries) which affect net income margin.
Target margin must be strictly less than 100% to remain mathematically finite.
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About the Margin Calculator
A margin calculator turns a cost and a target profit margin into the price you should charge, along with the gross profit and the equivalent markup. Enter what an item costs you and the margin you want to keep, and it works backwards to the shelf price.
The reason a calculator is worth using here, rather than mental arithmetic, is that margin and markup are measured against different numbers. Margin is profit as a share of the price you sell at. Markup is profit as a share of the cost you paid. They describe the same transaction and they almost never produce the same percentage, which is why a business can add 30% to its costs, believe it is running a 30% margin, and actually be running 23.08%.
That gap is not academic. It compounds across every unit sold, and it is usually discovered at the end of a quarter rather than at the point of pricing. If you take one thing from this page, make it the conversion table below: it shows what each margin costs you in markup terms, and what a routine 10% discount does to the profit underneath it.
Mathematical Formula & Logic
Three equations do all the work.
1. Selling price from cost and target margin
Price = Cost / (1 - Margin)
Margin here is a decimal, so 25% is 0.25. You divide rather than multiply because the margin is a share of the price you are solving for, not of the cost you already know. This is the step people get wrong.
2. Gross profit
Profit = Price - Cost
The cash left on each unit before overheads, wages, rent or tax. It is gross profit, not what you keep.
3. Markup, the same profit expressed against cost
Markup = (Profit / Cost) x 100
Converting between the two directly:
Markup = Margin / (1 - Margin)
Margin = Markup / (1 + Markup)
So a 50% margin is a 100% markup, and a 100% markup is a 50% margin. A 30% markup is only a 23.08% margin.
One consequence worth internalising: margin can approach 100% but never reach it, because profit is a share of a price that always contains the cost. Markup has no ceiling at all. A product costing 1 and selling for 100 carries a 99% margin and a 9,900% markup.
A second consequence governs discounting. If you cut price by d and your margin is m, the profit on each unit falls by d / m. That is a ratio, not a subtraction. A 10% discount on a 20% margin does not leave 10% of margin behind, it destroys half the profit. On a 50% margin the same discount costs a fifth. The thinner the margin, the more violent the effect.
Step-by-Step Example
A wholesaler buys a unit for $75.00 and wants to keep a 25% gross margin.
1. Inputs: Cost = $75.00, Margin = 25%, so 0.25 as a decimal.
2. Selling price: 75.00 / (1 - 0.25) = 75.00 / 0.75 = $100.00.
3. Gross profit: 100.00 - 75.00 = $25.00.
4. Markup: (25.00 / 75.00) x 100 = 33.33%.
So the price is $100.00, the profit is $25.00, and although the margin is 25%, the markup is 33.33%. Had the wholesaler simply added 25% to cost, the price would have been $93.75 and the margin only 20% - a $6.25 shortfall on every single unit.
Now apply a 10% promotional discount to that $100.00 price.
5. New price: $90.00.
6. New profit: 90.00 - 75.00 = $15.00.
7. New margin: 15.00 / 90.00 = 16.67%.
The price moved 10% and the profit moved 40%, exactly the d / m ratio: 0.10 / 0.25. To finish the promotion with the same total gross profit, the wholesaler must sell 1.67 times as many units. At a 20% margin that requirement becomes 2.00 times, which is why thin-margin retailers discount on a narrow range of items rather than across the catalogue.
The same arithmetic explains marketplace fees. A platform taking 15% of the selling price is not shaving 15% off your profit, it is taking 15 points off your margin. On a 25% margin that leaves 10 points, and on a 20% margin it leaves 5. Sellers who price for a healthy margin and then add a marketplace afterwards frequently find the second one has eaten most of the first.
Reference Data & Values
margin
price at $100 cost
profit
markup
margin after 10% off
profit lost
10%
$111.11
$11.11
11.11%
0.00%
100%
20%
$125.00
$25.00
25.00%
11.11%
50%
25%
$133.33
$33.33
33.33%
16.67%
40%
30%
$142.86
$42.86
42.86%
22.22%
33%
40%
$166.67
$66.67
66.67%
33.33%
25%
50%
$200.00
$100.00
100.00%
44.44%
20%
Frequently Asked Questions
Profit margin is profit divided by the selling price - the share of each sale you keep rather than pay out in cost of goods. Sell for $100 having paid $75 and the margin is $25 / $100, or 25%. It is always measured against the price, which is what separates it from markup.
They measure the same profit against different bases. Margin divides profit by the selling price; markup divides it by the cost. A 20% margin is a 25% markup, a 25% margin is a 33.33% markup, and a 50% margin is a 100% markup. Convert with Markup = Margin / (1 - Margin), or back with Margin = Markup / (1 + Markup).
Because you added 30% of the cost, which is a markup, while margin is measured against the price. A 30% markup works out to 30 / 130, or 23.08% margin. To actually reach a 30% margin you need a 42.86% markup. This single confusion is the most common pricing error in small retail and wholesale.
Divide the cost by one minus the margin as a decimal. A cost of $80 at a 20% margin is 80 / (1 - 0.2) = 80 / 0.8 = $100. You divide rather than multiply because the margin is a share of the price you are solving for, not of the cost you already know.
Far more than the headline suggests. Cut the price by d when your margin is m and the profit per unit falls by d / m. A 10% discount on a 20% margin destroys half the profit and leaves an 11.11% margin; the same discount on a 50% margin costs only a fifth. To end a promotion with the same total gross profit you would need to sell 2.00 times the units at a 20% margin, or 1.25 times at 50%.
Excluding. VAT, GST and sales tax are collected on behalf of the tax authority and are not your revenue, so including them inflates the figure. A $120 price that includes 20% VAT is $100 of revenue; against a $75 cost that is a 25% margin, not the 37.5% you would get by dividing into $120.
No. The selling price always contains the cost, so profit can never be larger than the price it is measured against, and margin approaches 100% without reaching it. Markup has no such ceiling - an item costing $1 and selling for $100 carries a 99% margin and a 9,900% markup.
Gross. It compares the selling price with the direct cost of the item only. Operating margin then subtracts wages, rent, marketing and other running costs, and net margin subtracts interest and tax on top. A shop can hold a strong 45% gross margin and still lose money once the other two are applied, which is why gross margin is a pricing tool rather than a measure of whether the business works.
It varies enormously by model, so benchmark against your own sector rather than a general figure. Grocery and volume wholesale commonly run on single-digit gross margins and rely on turnover; software and professional services often exceed 70% because the marginal cost of one more unit is near zero. What matters more than the level is whether it survives your discounting, platform fees and returns.