About this calculator
Margin and markup are used interchangeably in conversation but mean different things, and the gap between them causes real pricing errors. Margin measures profit against what you sell. Markup measures profit against what it cost you. At a 40% margin the markup is 67%.
How it works
Gross margin leaves direct production costs in place and shows how much each sales dollar contributes. Net margin also deducts operating expenses, revealing what actually remains. The target-profit figure inverts the calculation to show the revenue you need.
Frequently asked questions
How do I calculate profit margin?
Margin = (Revenue − Costs) ÷ Revenue × 100. For gross margin, use costs of goods sold. For net margin, use all costs including operating expenses. Revenue is always the denominator.
What is a good profit margin by industry?
It varies enormously. Software and digital products often exceed 70%, retail runs 20 to 40%, wholesale 10 to 25%, restaurants 5 to 15%, and agencies commonly 30 to 50%. Compare against your own sector.
What is the difference between margin and markup?
Margin is profit over selling price. Markup is profit over cost. A 50% margin equals a 100% markup. If you need a 50% margin, you must double the cost, not add half of it.
How do I improve my profit margin?
Raise prices where value allows, reduce cost of goods sold through supplier negotiation or volume, improve operational efficiency, and drop unprofitable customers or services. Cutting the lowest-margin work frees capacity.
What is a healthy net profit margin for a small business?
A 10% net margin is solid for most small service businesses, 15% or more is strong, and anything below 5% leaves little room for a bad quarter. Note that owner compensation is often an expense, so add it back when assessing owner profit.
Is a 50% margin good?
For most service and software businesses, yes, 50% is healthy and often excellent. For retail or distribution, 50% would be extraordinary. Judge your margin against your industry, not against a generic benchmark.